An Empiric Analysis Of The Association Between Accounting Information And The Pricing Of Stock

Based on the behavioral finance and information economics, this paper analyzes the associations between the accounting information and the pricing of the stock from the perspective of the accounting information users.First, this thesis examines the origin and evolution and relevant implication of the theory of relevance between the accounting information and the pricing of the stock, explains such relevance under ideal condition and real condition from the perspective of information economics, and reviews relevant empirical research both at home and abroad. It has been found that the factors affecting the relevance between the accounting information and stock prices are as follows: firm size, firm losses, earning persistence, the public holding percentage, the change of accounting standards, the adjustment of accounting policies and the reform of shares issues systems etc.The paper, based on the results of research both at home and abroad, explores at depth the relevance between the accounting statements from 1993 to 2002 and stock prices from 1994 to 2003. The main academic contributions of this paper is as follows:1. Chapter 3 examines the relevance between accounting information and stock prices under ideal and actual conditions from the point of information economics, and provides a hypothesis that the decline in the pricing multiples of earning is synchronized by the increase in the pricing multiples of book value from corrected model of Ohlson. It seems to imply a decrease in the uncertainty of economic conditions and capital market. According to the empirical analysis of chapter 5, the theorem passes test.2. Chapter 5, comparing the equal-weighted model with stock capital-weighted model, Adj R-Sq of stock capital-weighted model is always higher than that of equal-weighted model, but the pricing multiples of earning of the above two models are almost close, suggesting that the increase in the explanatory power of stock capital-weighted model is the result of the increase in the pricing multiples of book value.3. This study finds that since the disclosure of 2002 annual report, the relevance between the stock price and earning has significantly decreased, and the relevance between the stock price and book value significantly increased. The evidence implies that investors begin to be concerned about the intrinsic value of the firms based on book value and meantime this tell us that measures that the ministry of finance are reinforcing the prudence of accounting measurement, and the effort of CSRC to beat"black mouths" and "black institutional investors" , have achieved the primary success and produced a positive effect on the safety of the stock market.4. The conclusion of chapter 5 is as follows:a. When the public holding percentage is added to price model, the explanatorypower of the price model is enhanced, and the public holding percentage and the stock price are significantly negatively relevant. This finding are compatible with the conclusion of Chen Xinyue, Chen Donghua and Zhu Hongjun (2002), but when the total samples are divideed into sub-samples according to current share size and firm losses, the relevance between the public holding percentage and the stock price is insignificant. So the function of the public holding percentage deserves deeper future research.b. The Adj R-Sq of positive profit firms is higher than10%, and that of negative profit firms is lower than 1%.5. Chapter6 finds:a. The earning quality is in negative relation to the relevance between accounting information and stock price. This finding is inconsistent with the conclusion drawn by Collins and Maydew and Weiss (1997) from the U.S. market.b. From 1994 to 2002, the operating profit and non-operating income are in significantly positive relation to the stock price at 1%. This shows that the Chinese investors don't distinguish between persistent earnings and temporary earnings. This may be a result of the unsteady government policies.6. Chapter 7 finds that:a. Compatible with the findings from the U.S. market, with the decrease in intangible asset ratio in China market, the combined value-relevance of earnings and book values has declined. And the lower the intangible asset ratio, the smaller the pricing multiples of earnings. This may be that intangible asset ratio conveys that information of firm value growth.b. Chinese firm intangible asset ratio is in significantly positive relation to stock prices, suggesting that investors are concerned about intangible asset ratio at the pricing of stock.7. Chapter 8 finds that:a. working capital ratio, current share ratio, ROE, and firm size are in significantly negative relation to P/E and P/BV.b. Current ratio is in significantly positive relation to P/E, listing time and audit opinions are in significantly negative relation to P/E, and high-tech and positive profit firm are in significantly positive relation to P/BV.In short, in our market, the pricing of stock seems to deviate from the financial ratios such as working capital ratio and ROE, and make extensive use of more non-financial information such as firm size, current share ratio, industries and audit opinions.Based on the above conclusions, the paper suggests that government should change the public shareholders as "a weak-side person", and draw the regulatory ideas from the mature markets, and pay more attention to investors' behaviors and beliefs, and evaluate the listed firms by combining financial ratios with firm market value.The thesis will serve as a recommendation for the regulatory body in reprioritizing its focus from static regulation, which is based on accounting rules, to dynamic regulation, which attends to the investors' wills, and for listed firms in improving the quality and economic effect of the disclosure of financial information,...