Does Study of the Information Content of Profits Announcements Explain Why Firms Use Particular Accounting Practice? Does It Help to Predict Which Firms Will Use Particular Accounting Practices?

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Australasian Accounting Business and Finance Journal
Volume 1 Australasian Accounting Business and Finance Journal Issue 1 Australasian Accounting Business and Finance Journal Article 1

Accounting Research and Theory: The age of neoempiricism
M. Gaffikin
University of Wollongong, gaffikin@uow.edu.au

Follow this and additional works at: http://ro.uow.edu.au/aabfj Copyright ©2007 Australasian Accounting Business and Finance Journal and Authors. Recommended Citation Gaffikin, M., Accounting Research and Theory: The age of neo-empiricism, Australasian Accounting Business and Finance Journal, 1(1), 2007. Available at:http://ro.uow.edu.au/aabfj/vol1/iss1/1
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Vol. 1, No.1. pp. 1-17.

All neo-empirical accounting research has the underlying assumption of the efficiency of markets – the efficient markets hypothesis (EMH). It is referred to as an “hypothesis” because despite more than forty years of research designed to test the hypothesis all attempts to date have failed to confirm it. Therefore, consistent with the generally accepted process of theory construction which states (simply) that a theory is a confirmed hypothesis, it remains an hypothesis. The EMH emerged in the 1960s from the work of researchers at the University of Chicago trained in economics and finance and working in the areas known as portfolio theory and employing the capital assets pricing model (CAPM). It was then taken up by accountants also working and studying at the University of Chicago and, as stated, it has been the cornerstone of a considerable amount of research over the last forty years. The EMH is an assumption about the relationship of information to security prices. The research area is usually referred to as capital markets research but the EMH has had implications for other research areas as well. Two Australians working at the University of Chicago, Ray Ball and Phillip Brown, are regarded as the first to engage in capital markets research in accounting and their work (Ball and Brown, 1968) has had a vast number of

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