Prof Ane Tamayo

This course is compulsory on the BSc in Accounting and Finance. This course is not available as an outside option to students on other programmes. This course is not available to General Course students.

Pre-requisites:

Students must have completed AC105 and AC106 and EC1A3 before taking this course.

Co-requisites:

Students must complete AC205 and EC2A3 and EC2C3 either before taking this course or in the same year as this course.

This course examines accounting through the lens of economics, exploring how accounting information affects economic decision-making in capital markets and firms. It focuses on the two fundamental economic roles of accounting: (1) the informational role - providing information to reduce information asymmetry in capital markets and facilitate valuation, and (2) the contracting role - facilitating contracts by mitigating agency problems between managers, shareholders, creditors, and other stakeholders.

The course explores how these roles are fulfilled through voluntary and mandatory disclosure and analyses the real effects that accounting information can have on firm behaviour and resource allocation.

The course emphasises empirical research methods and causal inference, combining conceptual understanding with practical applications. Students will engage with foundational economics papers as well as classic and recent accounting studies. They will also work with real data to understand how researchers test theories empirically.

Building on students' foundations in (micro)economics and econometrics, the course connects accounting phenomena to core economic principles and develops skills in research design and empirical analysis.

30 hours of seminars in the Winter Term.

This course has a reading week in Week 6 of Winter Term.

No one book covers the entire course. Detailed reading lists of journal articles will be provided during the course, but some indicative readings: 

• Ball, R., & Brown, P. (1968). "An empirical evaluation of accounting income numbers." Journal of Accounting Research, 6(2), 159-178. 
• Watts, R.L., & Zimmerman, J.L. (1986). Positive Accounting Theory.
• Bernard, V.L., & Thomas, J.K. (1989). "Post-earnings-announcement drift: Delayed price response or risk premium?" Journal of Accounting Research, 27, 1-36. 
• Watts, R.L., & Zimmerman, J.L. (1990). "Positive accounting theory: A ten-year perspective." The Accounting Review, 65(1), 131-156. 
• Francis, J., LaFond, R., Olsson, P., & Schipper, K. (2004). "Costs of equity and earnings attributes." The Accounting Review, 79(4), 967-1010.
• Lambert, R., Leuz, C., & Verrecchia, R.E. (2007). "Accounting information, disclosure, and the cost of capital." Journal of Accounting Research, 45(2), 385-420. 
• Dechow, P.M., Ge, W., & Schrand, C. (2010). "Understanding earnings quality: A review of the proxies, their determinants and their consequences." Journal of Accounting and Economics, 50(2-3), 344-401. 
• Christensen, H.B., Hail, L., & Leuz, C. (2013). "Mandatory IFRS reporting and changes in enforcement." Journal of Accounting and Economics, 56(2-3), 147-177. 
• Shroff, N., Verdi, R.S., & Yost, B.P. (2017). "When does the peer information environment matter?" Journal of Accounting and Economics, 55(5), 1221-1254. 
• Christensen, H., E. Floyd, L. Liu and M. Maffett (2017). The real effects of mandated information on social responsibility in financial reports: Evidence from mine safety records, Journal of Accounting and Economics 64, 284-304. 
• Breuer, M. (2021). "How does financial reporting regulation affect industry-wide resource allocation?" Journal of Accounting Research, 59(1), 59-110. 
• Ball, R. (2023). "By what criteria do we evaluate accounting? Some thoughts on economic welfare and the archival literature". Journal of Accounting Research, 62(1), 7-54. 
• Cetin, F.M. (2025). "The real effects of accounting on innovation: Evidence from ASC 606." The Accounting Review. Forthcoming. 

Exam (70%), duration: 120 Minutes in the Spring exam period.

Course participation (10%).

Problem sets (20%).