The Australasian Accounting Business & Finance Journal, February 2007 Gaffikin: Accounting Research and Theory: the age of neo-empiricism. Vol. 1, No.1.pp. 1-19.
Accounting Research and Theory: The age of neo-empiricism
Michael Gaffikin, School of Accounting & Finance, University of Wollongong
ABSTRACT The theorising in accounting prior to 1970 was rejected as not providing sufficiently general theories. Informed by theories in economics and finance (and other disciplines such as psychology) and with the aid of computers, attempts to theorise accounting took a new direction. Large data collection and analysis emphasized a purportedly more systematic empirical approach to developing theory. Key words: accounting; neo-empiricism;
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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 citations. Another seminal work was that by Bill Beaver (1968). There are various forms of market efficiency which, however, only discriminate on the degree of efficiency similar to how economists describe how perfect a market is: perfect or imperfect etc. Nevertheless, in the literature reference is made to three types of EMH, the strong form (markets very efficient), semi-strong and weak (markets not very efficient). A strongly efficient market would be one in which security prices fully reflect all available information – and do so immediately the information becomes available – all new information is immediately absorbed by the market. A leading figure in the development of the EMH in finance, Eugene Fama, states that a market is efficient if “security prices fully reflect all available information” (1970, p 384). It should be noted that available information will include all information that investors use to make investment decisions and accounting will only be a part of such information. CAPITAL MARKETS RESEARCH Prior