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| 2 types of capital markets |
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| shares bought and sold after IPO |
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| regulates the securities markets |
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| extreme earnings management. is almost always considered detrimental by financial analysts |
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| stock prices are assumed to reflect publicly available information almost immediately |
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| if "good" surprise, stock price will go up. if "bad" surprise, stock price will decrease. this fortifies the efficient markets theory |
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| the concept that a professional analyst or portfolio cannot outperform a randomly selected stock portfolio |
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| insists that investment portfolios should be diversified |
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| a measure of the relationship of price movements of individual securities to market price movements |
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| transaction cost economics |
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| focuses on the transaction--goods and service transferred across a technologically separate interface--as the basic unit of analysis |
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| writing contracts to accomplish something with minimum transaction and agency costs |
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| 1. information asymmetries (limited or misinformed info by one side) 2. adverse selection (such as the market for lemons) 3. moral hazard (such as shirking or ethics violations) |
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| people intend to be rational but are limited in their ability to make optimal choices |
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| inventory methods, depreciation, and accounting for marketable securities are areas that allow accounting choice |
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| an earnings management technique to maintain earnings at a specified level or to increase them at a steady pace. this gives the appearance of high earnings quality or earnings persistence, which indicate that core earnings are likely to continue |
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| unintended consequences of legislation or regulations |
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