The Use of Information by Capital Providers: Academic Literature Review

This report reviews the literature on the use of information by capital providers, who are primary recipients of accounting information. Placing particular emphasis on financial statement data, the report focuses on the role and importance of information in the provision of capital to large, publicly listed companies. Since the main objective of accounting information is to serve the information needs of capital providers, the questions addressed by the review are fundamentally important to standard setters and the accounting profession, as well as to the academic accounting community.
The report surveys the most recent, reliable academic literature to address the following questions:
• Who are the key capital providers to companies in the European Union?
• What decisions are capital providers making and what are the information needs for these
decisions?
• What information do these capital providers currently use to make financial decisions and assess
stewardship?
• How and for what purpose is this information accessed and used? What is the ‘logic’ of the
models applied?
• How important are financial statements for capital providers’ decision making and assessing
stewardship? How are financial statements used?
• What additional information would capital providers consider to be useful?
In addressing these questions, the report adopts a European perspective and emphasises ‘direct’ evidence, which relates as closely as possible to capital providers’ individual decision making processes. Although literature using ‘indirect’ evidence, such as studies of aggregate stock market reactions to, or associations with, accounting information is extensive and also potentially informative, it is not prioritised in this review. The review also examines literature from non-English sources, although the research in this area is predominantly published in English.