THE IMPACT OF FINANCIAL ACCOUNTING INFORMATION TO MAKE AN INVESTMENT DECISION IN THE STOCK MARKET: A CASE STUDY ON THE AUSTRALIAN SECURITIES EXCHANGE
Abstract:
The accounting information provides brief observation on the financial health, financial profit, revenue, sales financial debt, stakeholder’s equity and financial debt of the company. This information helps the investors stock market investment decision, as accounting information reflects the share price values of securities issued by the listed entities in the stock market. However, the accounting information is stated as technical numerical values which are complex to be understood by common stock market investors. Thus, the investors usually look for economical performance, corporate announcements, financial market, and other variables for stock market investments. In the research, the accounting information impact for stock market decision has been analysed with the context of Australian stock exchange. The proposal states the researcher will introduce descriptive research analysis in regards to introduce a secondary analysing using different journal and articles on research topic. The researcher has proposed significant research objectives and ethical considerations which are required to follow for proper and observation on topic of research. In the study, the researcher increases an overall review of the stock market and financial accounting information relationships through literature review.
The research problem includes many of investors in the stock market place are not informed about the accounting information and performance of the entities and its stock price performances. This usually ends to the loss of the investor’s money as the company might not able to repay their return on investment as consolidated rate. In the stock marketplace, the lack of proper information on accounting usually does not make positive effects on income generation source for the individuals in stock market. The accounting information provides proper observation of the business performance, revenue generation and evaluation of the business debts in the marketplace (Alam, Alam & Mushtaq, 2016). As per the annual reports of the company less income generation and poor cash flow results to the inability of business entities to pay for its financial debts on time in the market. This reflects the investor's returns might be delayed or not been received in proper rate or expected profit margins. Thus, the decision making without making accounting information and proper research on the financial health of the company might bring huge losses to the investors in the market. The market volatility is another significant risk, which requires proper information on the accounting, financial data and performance of share market of the company. The stock prices usually fluctuate in the market as per activities and decision making of the organization; the up and down of the stock prices are the peak time frame in which the stock and shares are sold and purchased by the investors. The lack of proper information on accounting reduces the confidence of investors to make an investment or purchase from the stock market as it could result in high price purchase and low price returns for the investors. Thus, the information over the accounting and financial data of the company is required and necessary to make a potential investment decision making for the firm in the marketplace (Shah, Ahmad & Mahmood, 2018). As per the rationale and research problem, the accounting information makes both positive as well as a negative impact on the stock market investment decisions, in the stock market the peoples usually gains income as per the changes in the stock market. There is an increase and decrease in the rates of the share prices usually provides both profit and loss to the investors, although if the investor makes a proper calculation and sales their stocks and shares at the peak times could receive huge profit and income from the stock marketplace (Qureshi & Hunjra, 2012). This could be possible while the accounting information and news updates of a particular organization are thoroughly followed. The decision making of an organization makes changes in the prices, thus accounting information helps to push the stock price which could be used to make huge returners on investment (Chen, Vitiello, Hyde & Poon, 2018). Thus, the research problem suggests there has been a mild confusion over the impact of the accounting information could potentially benefit the stock market investment decisions in marketplace. In the research, with proper research questions, objectives and methodologies, the researcher will make an in-depth analysis over the hypothesis beyond the need and requirement of information business finance on the decision making to invest in share market and its reliable effects on the investors in the market.
The stock market is the financial marketplace where the trading of shares issued by listed business entities is made; the market is attracted and interested in several local and foreign investors. An investor could be common population, institutions, business firms and other investing parties. The investment decision made in the stock market has one prime agenda to earn profit in returns to the investment made by the investors on their preferred shares, stocks, derivatives, equity bonds and debentures.
The Australian stock exchange or ASX has a daily turnover of A$ 4.685 billion is a stock market which is counted as one of the top 16 world stock market exchanges. It is stock market operating institution which includes payment systems of stocks, facilitating stock market performance and analysis of the public sectors operating in Australia and evaluation of the derivatives market, equity market, foreign exchange market, bond market and funds. There are about 2258 business entities listed in the stock exchange of the country providing their shares and other financial instruments for purchase and sale in regards to earning profit for both investors and for the firms (Asx, 2019). The investors are allowed through the stock market to manage their investment and track them using several instruments. It has observed that the stock market investments allows required fund generation for the business entities which is needed for making an investment for further reoperations. On the other hand, the stock market is one of the interesting and prime sources of generating income for investors (Li et al., 2016). The investors of Australian stock exchange requires information for stock market investments such as company background, company market performance, annual reports, revenue generation, financial debt and other potential cash flow information which is gathered from corporate financial reports published. The third function of the stock market is to provide a regulating place for these investors to trade for securities, stocks shares and other corporate stocks presented in the market based on the determined pricing as per the demand and supply of these financial securities and related instruments. It has evaluated that the financial statement is the reports that provide information in the accounting position of the company based on which the investment decisions are made. However, it has observed that focused over the downfall and uprising of the prices of the securities also considered as one of the reliable sources to make an investment decision for the stock brokers in the stock market. In the financial stock broking market, economic forces and foreign currency rate changes forces the stock prices performance. Specifically, the economic forces make rise and fall of the share prices in the marker (Adam, Marcet & Nicolini, 2016). Thus, investors have an option to look after the changes in the economic and market conditions to make the decision for investment in the share market. In the stock trading and analysis, it could be evaluated that accounting information and financial data of the company might be an important factor for investment decision making as there are different market instruments, forces and factors which significantly stock price impacts are based on which the investment decisions are made.. The researcher will include brief research methods, instruments, literature analysis for providing in-depth knowledge and learning over the research
The researcher will have to include a genuinely authentic and genuine source of information as a reference to support the contents of the research. The researcher will have to receive proper permission in relation to access secondary data of it is necessary for the research to be included. A proper consent needs to be taken for the research to include secondary data and analysis for the research. In researcher will need to be honest while reporting data, methods, result, publication status and procedure (Connelly, 2014). The data should not be fabricated and misrepresented. Again, one should not deceive the research sponsors, his or her colleagues or the public. As per the data analysis, experimental design, peer review, data interpretation, expert testimony, grant writing and other sides of research are concerned, one should one avoid biases. The self-deception should be avoided or minimised as it may affect the process of research. For the researcher, it will be important to keep the agreements and promises, and again, the consistency of action and thought should be mentioned. Any kind of carelessness, silly errors or negligence should not take place (Benson, Clarkson Smith & Tutticci, 2015). One should always be careful and critical while examining his or her work or peers' work. Along with that, a proper record of the activities like, research design, data and correspondence with the journals and agencies should be mentioned. The researchers should always be open regarding being criticised or any new idea. In relation to the secondary research, the researcher will not include any confidential and controversial statements in the research, the research data and information must not be shared to any other third party or personal benefits and only to be used for the research purpose.
The literature review introduces in-depth analysis on the research topic using scholars, authors and journals to add value and quality to the research. In the literature review, the major focus of research analyse and evaluate us funding the significance and usage of financial and accounting information in stock market decision. The literature analysis and review will include supporting evidence that helps to increase quality of the research.
The stock market performance and positioning are introduced and described by Bull and Bear factors; these are significant markets of the stock market which reflects the positioning and status of different shares trading in the stock market (Norman, 2012). This helps to determine the pricing, rate of profit and return for the investors to make investment decisions on the corporate securities. Whether there is an appreciation or depreciation in the values of the securities, these reflect the attitude of the investors and their decision making. In case of the bull market, the stock values usually rise in the marketplace. Usually, the high-end trade of securities, stocks, shares, debentures and other financial instruments are located. The rise in values usually witnesses the sale of stocks in the market (DeLarosiere & Nielsen, 2017). In this market stability, usually, investors sell or retain with their acquired shares to have faith for earning profit form lion period of time. On the contrary, bear market signifies there is a fall in the share price and market valuation of the stock market. It has observed that at the time of the bear market, downward or fall of prices usually declines the faith of investors in making a trade for the shares. In the particular market situations, the purchase is usually witnessed by the stock market; the purchase of shares is usually practiced while the values of shares are usually low and look after the changes of value go high to sell those shares in terms of earning a profit (P&ey, Chaubey & Tripathi, 2016).
As per the characteristics of bull and bear stock market, the performance of the stock market is depended over the supply and demand of the securities. In case of the bull market, it is witnessed that there is a strong demand for the shares and securities and have low supply has the high price of the securities increase the profit possibilities of the investors in the market. In the case of the bear market, the supply becomes strong, and the demand for shares and securities merely considered low due to fewer valuations of share price, which result in loss of the investors. In other characteristics of the stock market, the investor’s psychology plays a vital part in the trading of securities (Metawa, Hassan, Metawa & Safa, 2019). The volatility and fluctuation of stock market impact on the behavioural approach, sentiments, reactions, perceptions, expectations and actions of the investors. There is a mutual dependency of stock market performance and investor's performance, which is driven by the performance of the stock prices and values in the market. In other words, the rise of stock market values and prices raises the confidence of the traders or investors, while decline or fall of the stock market prices shakes the confidence level of the investors. The investors usually decide to key their money out of the stock market in fear of hitting losses (Jain, Jain & Jain, 2015). In the stock market, the performed shares debentures, securities and bonds are presented by a different corporate organisation which is largely part of the country economy. Thus, it could be stated that the stock market and economic activities and behaviours has a direct link and impact. The changes in economic activities are another nature of the stock market behaviour. It has observed that bear market or declines stock market dictates the economic condition and performance of the country is low which has affected low or poor profit margin generated by the companies (Tsagkanos, Siriopoulos & Vartholomatou, 2019). On the other hand, the bull market comprises the economic conditions of the country is strong which provides high-end profit for the company that reflects the high rise in value and prices of the shares of the company in the stock market.
As per the signalling theory or hypothesis of information content, the public announcements of the company to make an investment in a new venture, merger, acquisitions or new product development includes information over the issue of shares and debentures in the market to generate funds. This information and contents make a direct impact on the share price performance of the company in the stock market. It has observed that announcement is a hypothesis which has a positive and negative impact, which makes the performance of its share imperfect in the market (Smyth & Lecoeuvre, 2015). The announcements are made by the management of an organisation includes contents and information which is used by the business executives to manipulate the performance of its share values to perform in the market. The decision making of managers for acquisitions includes information, which is used for introducing a hypothesis in the stock values, for increasing the confidence of investors to gain faith and investment from their end in returns to ensure providing more profit in return with higher interest rates. According to the particular theory, the business entities introduces shares declines the pricing of the stocks of company, the split of shares causes increase in the prices of other shares issued by the company which is used as instrument of developing debt funding from the market invested from different traders in the stock marketplace (Creusen, Hultink & Eling, 2013).
The CAPM is a financial tool, which is introduced to the evaluator and analyse the appropriate required returns of an asset which is introduced in the market as an investment from a corporate end. In thus theory of CAPM is used for observing the sensitivity of non-diversified risks. As per the theory of capital assets pricing, it evaluates the relationship between the estimated systematic financial risks and expected returns of the bassets which are engaged in the stock market. In the stock marketplace, the investors usually desire to negotiate and compensate with the risks in the securities traded in the market, which requires evaluating and analysing the time value for money (Norman, 2012). The theory evaluates the assets traded in the stock has potential risks, and these risks might make an impact on the value and performance of the stocks in the market. The CAPM model and analysis helps investors to make an investment decision based on minimizing the risks and maximizing the profit margins.
In the stock market, every security has the potentiality to provide profit as well as losses to the investors in regards to its performance and other forces which impact on its pricing value in the market. According to the great food theory, it has stated that investors could gain from the purchase of the stocks and securities from the stock market only if it is not overvalued rather making sales of the stocks within due time. In this theory, it provides a systematic procedure of dealing with and management of shares and securities, which is traded in the stock market. In this theory, it has stated that an investor is termed as fool whole buys or purchases a security from the market whose pricing value is questionable (P&ey, Chaubey & Tripathi, 2016). The theory suggests it is profitable for the investor that within the time frame the investor could sale the particular stock to another investor or fool to gain profit from it rather face loss while trading it in the stock market. In the stock market, every investor is followed by providing beneficial shares and stocks for earning benefit and profits from the stock market. The rise of sales and purchase of trading securities are usually converted by trade between the individuals themselves. The rise and fall of the stock market price values make a direct impact on the demand and supply to stocks within the traders. In the case of the increased pricing value of the stocks in the market, the sale and purchase of the stocks are spontaneously increased for earning a profit (Qureshi & Hunjra, 2012).
The share markets affected by the usage of proper financial tools risk aversion follow-ups and the level of corporate governance made by an organisation whose stocks or shares are traded in the market. The financial tools such as ratio analysis, annual report analysis, revenue analysis and financial health and position analysis of the firm are factors that make a potential impact on the investment decision making. In case of corporate governance, the activities and operations as well as decision making such as social responsibility of the company which is published in the annual report make direct impact on the stock market prices an entity, which is alleged for accounting frauds and charged, the shares of the company usually goes down providing losses to the investors (Shah, Ahmad & Mahmood, 2018). The financial data is another force that makes an stock market decisions, although the financial data is not the only force that makes an impact on the performance of shares there are other economic and market forces that change the pricing values of shares and so on decision making and behavioural approach of the investors. As per the analysis, the investment decision is made after analysis and observation of the financial and economic condition of a country also helps to earn higher profit from shares and securities in the market. This means the economic activities are other prime forces that make a stock market decisions of the investors for the purchase or sale of the stocks.
The financial accounting is introduced and prepared as per the Australian accounting standards; to provide relevant information over the profit, revenue, sales, debt, assets, liabilities and shareholder equity of the firm (Sharma & Kaushik, 2018). As per the Australian accounting standards, the financial accounting and financial reports are public reports, which help the shareholders or investor to observe the present market performance and condition of the firm. It deliverable provides learning on the potentiality of the firm to provide high-end returns to the investment made by the investors in the share and stocks of the company. In addition to it, it has analysed that the for the high investors such as mutual fund manager the financial data and financial accounting information are limited, in such regards the investors use another source of information of the corporate before going for an investment decision (Alam, Alam & Mushtaq, 2016). According to the stock market observation, the investors and financial traders in the stock market use the financial information and financial data of the company for making an investment in the shares. In most of the cases, the financial backers, investment agents are usually considered as the advisors for investors to make an investment in certain stocks and shares of the organisation to earn a profit. In the stock marketplace, the prime focus of the investors, agents and brokers is over the profit margin and financial health of the business rather focusing on the solvency, managerial efficiency and business activities in the market (Norman, 2012). In addition, the financial accounting tools such as ratio analysis, which provides a graphical presentation of the accounting performance of the firm, easy the decision making of investors for making an investment in the shares.
As per the literature analysis, none of the articles and journals contains proper data and information about the impact of financial accounting on the investor’s decision making procedure. The research is based on the secondary analysis. Thus there is a lack of real, live data experiences, information feeling and comments from the stock market investing individuals. As per the suggestions, it has observed that researcher might require making close-ended interviews with the individuals of Australian stock exchange and relevant investors of the stock market in regards to make a more in-depth analysis and put information over the importance of financial accounting information for stock market decision making (Bedeian, 2014).
In relation to find, the investors decisions requires information of company financial health, the research will be observing this factor in context of Australian stock market. It is focused over analysing the effects and potential usage of the financial information of listed business entities for decision making over-investment in the particular shares of those companies in relation to earn profit from the stock market. The objective of the research will be introduced by the research based on which the research methods and tools will be considered and selected for research information on the research topic. For the particular research, the research objectives are evaluated as follows:
The research designs include 3 prime types; the research design includes descriptive which is followed while the research is interested in theoretical describing and presenting a case or a situation in the research (Sekaran & Bougie, 2016). In the case of experimental research design, the research uses for making the explanation of a cause or effect in the research, in this method, the researchers evaluate the cause of situation. In the case in the implication of own ideas, thoughts, thinking, options and suggestions over a particular topic, the exploratory research design is selected (Bublitz, Philipich & Blatz, 2015). As per particular topic, the researcher has used descriptive research design in order to weaken a theoretical analysis over usage of financial information on investment decision making.
The sample size and population are referred to the individuals going to participate in the research or selected by a researcher to provide raw data and information on a research topic (Silverman, 2016). The research will be introduced through the engagement of secondary data and information from different journals articles, online sources and different media channels and sources, thus there is not the selection of sample size for this particular research.
The primary data collection method includes raw data collection form the participants who provide accurate information on the research topic through the interview, survey and numerical analysis. The usage of quantities data analysis process, the researchers are able to use tools and mathematical techniques, graphs, charts to gather raw data and information from the selected participants. In the case of secondary data, the usage of journals, articles, online sources and materials are engaged for providing relevant information over research (Flick, 2015). With the development of qualitative data collection techniques, the researchers are able to gather proper information over the research topic using secondary and published sources. In case of the particular research, the researcher has used secondary data collection process and qualitative data collection technique or method in regards to gathering information from online sources, newspapers, journals and other media sources for analysing the usage of financial accounting information in investment decision making (Johnston, 2017).
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