THE IMPORTANCE OF FINANCIAL ACCOUNTING FOR THE FUNCTIONING OF CAPITAL MARKETS: A LITERATURE REVIEW

The Fourth Industrial Revolution has generated many business transformations in technology, creating new opportunities as well as posing several challenges to several industries. Market participants highly demand an increase in the reliability and relevance of Accounting Information in such an inefficient market. However, several academics and practitioners have blamed that Accounting Information is no longer reliable and relevant because it is manipulated excessively and intentionally, leading to a series of global accounting scandals such as WorldCom in 2002. The market value of Worldcom's common stock plunged from about $150 billion in January 2000 to less than $150 million as of July 1, 2002. Vietnamese capital market is unexceptional since it witnessed numerous serious frauds resulted from earnings management, such as Bach Tuyet Cotton in 2007 and Petrovietnam in 2018. Consequently, this phenomenon encouraged us to raise a simple but crucial research question: What do people think about Accounting in the capital market? This review article looks at empirical and theoretical evidence and discusses the importance of Accounting in functioning the capital market. Based on the arguments related to the value relevance of Accounting Information of the most well-known scholars such as Beaver (1968), Ball and Brown (1968), and Nobel-prize winner Akerlof (1970), this paper confirmed the fundamental role of Accounting Information in avoiding information asymmetry and moral hazard.