Question

Studies have shown that the capital market response to quarterly earnings announcements disregard systematic components of earnings that should not be disregarded if the market is efficient. Meanwhile, other research show that corporate managers manipulate accounting data while acting in their own self-interest. What steps can regulators take to address this situation while meeting the goal of relevant and representationally faithful information and the overarching goal of financial reporting presented in SFAC8, chapter 1? Should these strategies reflect more or less rigidly uniform financial reporting rules?

Answer 1

Markets will definetly be influenced by the quarterly results of corporates and it is very much influenced if the markets are effective. If the markets are not impacted as such we can conclude the same.

Corporate managers can be said to be doing the trade with the intention of making profits when they know the results in advance this is called insider trade and is also illegal in markets.

Regulators should put a constant check on the movement of market and identify for any sudden changes in the market, and should also make strict the accounting principles compliance so that the quarterly results will depict the true picture of how the company is performing.