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ACCT 447 - Ch 2
The Financial Environment
17
Accounting
Undergraduate 4
09/15/2009

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Cards

Term
2 types of capital markets
Definition
primary and secondary
Term
primary market
Definition
IPOs
Term
secondary market
Definition
shares bought and sold after IPO
Term
SEC
Definition
regulates the securities markets
Term
earnings manipulation
Definition
extreme earnings management. is almost always considered detrimental by financial analysts
Term
efficient markets
Definition
stock prices are assumed to reflect publicly available information almost immediately
Term
earnings surprise
Definition
if "good" surprise, stock price will go up. if "bad" surprise, stock price will decrease. this fortifies the efficient markets theory
Term
random walk theory
Definition
the concept that a professional analyst or portfolio cannot outperform a randomly selected stock portfolio
Term
portfolio theory
Definition
insists that investment portfolios should be diversified
Term
beta analysis
Definition
a measure of the relationship of price movements of individual securities to market price movements
Term
transaction cost economics
Definition
focuses on the transaction--goods and service transferred across a technologically separate interface--as the basic unit of analysis
Term
efficient contracting
Definition
writing contracts to accomplish something with minimum transaction and agency costs
Term
3 types of agency costs
Definition
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)
Term
bounded rationality
Definition
people intend to be rational but are limited in their ability to make optimal choices
Term
accounting choice
Definition
inventory methods, depreciation, and accounting for marketable securities are areas that allow accounting choice
Term
income smoothing
Definition
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
Term
economic consequences
Definition
unintended consequences of legislation or regulations
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