Impacts on Stock Prices
The perceived valuation of a company is often reflected in the company stock price which
is affected by many factors both internal and external in nature. The motivations to
establish the value of a company can be born out of the desire to create profit from trading,
the need to better manage and understand companies, the need to develop effective
economic policies and the desire to communicate simplified accurate information to the
public (Hoover, 2006). According to Brealey, Myers, and Marcus, investors set the value
of public corporations in financial markets where shareholder value is determined by the
number of shares and the outstanding market price (Brealey, Myers, & Marcus, 2012).
Momani and Alsharari (2012), assert that financial theory shows the following external
macroeconomic factors affect stock returns are “the spread between long and short interest
rates, expected and unexpected inflation, industrial production, and the spread between
high- and low-grade bonds” (p. 152). These factors are important because they affect the
financing and thus influence the opportunities each firm may consider which in turn affect
their stock price. The financial statements are prepared according to conform to the
standards imposed by the governing bodies respectfully, the GAAP and IRS. These
statements although created internally are external in nature since they are prepared with
an accrual-based accounting methodology (Brealey, Myers, & Marcus, 2012).
According to Hoover (2006), the financial statements can help determine company value
however they are subject to manipulation both legally and illegally (Hoover, 2006).
Hoover (2006) further asserts that their interpretation is complicated by the fact that,
