The First Half-Century of Empirical Capital Markets Research in Accounting in Pictures

Abstract

Seminal papers by Ball and Brown (1968) and Beaver (1968) spawned a vast literature on the role of accounting numbers in capital markets. This literature, often referred to as capital markets research in accounting (CMRA), is now more than a half-century old. In light of numerous changes to the economic and financial reporting environments over this time, we estimate CMRA’s major relations using a comprehensive sample period. We illustrate each relation using plots, allowing us to efficiently present CMRA’s first half-century consistent with the adage “a picture is worth a thousand words.” The aims of our study are to document the extent of time-series variation in CMRA’s major relations and to provide evidence on market-level determinants of that variation. In doing so, our study provides a natural starting point for future research designed to develop and test additional causal explanations for time-series variation in the properties of CMRA’s major relations.

Keywords: capital markets, association studies, event studies, time-series analysis, earnings, stock returns, earnings-return relation, information content, earnings announcements, post-earnings announcement drift, accruals, cash flows, earnings response coefficients, analysts' earnings forecasts, accounting conservatism, earnings' asymmetric timeliness, value relevance, earnings timeliness, management forecasts

JEL Classification: E32, M41