Question: 1. What is the naive-investor hypothesis? Why is it important with respect to financial reporting, and what are the research findings? Why is the choice between the FIFO-LIFO inventory methods an interesting issue in capital market research? Why may accounting policies with no direct cash flow consequences indirectly affect investors or creditors?
2. Why is it argued that capital market research cannot determine the optimality of accounting policies even for the limited investor creditor group?