The Role of Accounting Information in Financial Market Efficiency: Evidence from Emerging Economies

Accounting information has many roles in the financial market, squeezing the information gap, aiding in investment so as to improve the allocation of financial resources. The role of accounting information in the promotion of the market efficiency, however, differs by country including between developed and emerging economies. This article examines these connections from the accounting information quality, disclosure transparency and earnings information, corporate governance and institutional development perspectives and in relation to the financial markets' efficiency in developing economies. With existing theories and previous empirical studies, the paper adopts a conceptual and literature-based approach of "explanation" to describe the impact of accounting information on the incorporation of firm specific information into security prices. Seeking out from the analysis, it indicates that financial information should be timely, reliable, comparable and transparent, as it can improve the investors' confidence and strengthen the price discovery. But if there is poor legal and regulatory enforcement, high overall and concentrated stock holdings, poor investor protection, non-standard accounting principles, and low financial literacy, then the quality of the data disclosed can be reduced. The article contends that accounting information, by itself, is not sufficient to ensure market efficiency: It's effectiveness relies on the institutional context of its production, disclosure, interpretation and enforcement context. As such, enhancing the quality of accounting standards and audit quality, corporate governance and digital disclosure systems is an imperative for emerging economies aspiring to more transparent and efficient financial markets. The article adds to an understanding of the way in which the institutional setting within which accounting information is produced can assist the efficiency of the market, and points to future empirical studies.