1 3101AFE Accounting Theory and Practice WORKSHOP 4 Deegan Topic 6: Reactions of capital markets to financial reporting QUESTION 1: Explain capital markets research. What is it and what can it tell...

hey its weekly homework question as last week please be carefull about the plagrism


1 3101AFE Accounting Theory and Practice WORKSHOP 4 Deegan Topic 6: Reactions of capital markets to financial reporting QUESTION 1: Explain capital markets research. What is it and what can it tell us? QUESTION 2: Evidence shows that share prices might not fully react to financial accounting information immediately and that abnormal returns might persist for a period of time following the release of information (a case of ‘post-announcement drift’). Does this indicate that securities markets are not efficient and that assumptions about market efficiency should be rejected? QUESTION 3: The following is an extract from a newspaper article entitled ‘Westpac chief in $3bn parting shot’ (by George Lekakis in the Advertiser, 2 November 2007, p. 72): OUTGOING Westpac chief David Morgan yesterday delivered his final annual result for the group—a bumper bottom line harvest of $3.45 billion. Net profit was up 12.4 per cent for the year following spectacular growth in fee income businesses, particularly funds management and institutional banking. Dr Morgan, who makes way for incoming managing director Gail Kelly in February, described the 2007 earnings performance as ‘one of the best” in his nine years at the group’s helm. ‘I think we’ve got enormous growth ahead of us,’ he said. ‘I’ve never seen momentum in the company as we have now.’ Investors responded positively to the profit announcement, driving up the share price by 52c to a record close of $31.06. Using the material provided in this chapter, provide an explanation of why the capital market responded as positively as it did to Westpac’s profit announcement. QUESTION 4: Review Accounting Headline 10.7 and explain the reason for the change in the price of Wesfarmers shares. Also, what might have caused the price changes in the shares in the other retail organisations?