| With the development of economy, it is also improved of enterprises, which gradually transformed from the property owners and Partnerships into modern corporate enterprises. Companies continue to grow and develop to become the main micro-economic importance. The rise of the stock market not only gathers surplus funds to speed up the flow and efficiency, but also expands the funding space for enterprise to solve the problem of insufficient funding for them.China's securities market was formed in 1990, which played roles of fund-raising, financing and pricing and other functions. It obviously has become the "barometer" for the national economy. There are 1677 listed companies which possess total market value more than in China in the end of 2009, the total market value of more than 243938 billion. Therefore, Securities market Provide adequate funding for the development of enterprises. However, has Securities market played roles of improving the efficiency of resource allocation and providing scarce resources to high-quality companies? We are trying to research this problem and to propose appropriate policy recommendations based on the conclusions we get before.With the establishment of modern corporate system, there are many common characters appeared into them, including not only the separation of ownership and management rights but also dispersed ownership et al. In their famous book called < Modern Corporation and Private Property> which pressed in 1932, Berle and Means pointed that control of the company would be transferred to the hands of managers in United States, which would encroach the interests of capital owners. Because of the separation of ownership and management, principal-agent problem emerges, which will lead managers to "adverse selection" and "moral hazard"With further research, many scholars such as La Porta, Faccio and Lang et al. believe that ownership is almost concentrated in other countries especially southeast Asia, which lead major shareholders to encroach minority shareholders by holding position. It is found that this is common in the world. As a contract between members in corporate, corporate governance can play roles to ensure the right balance between stakeholders and to prompt the company made scientific strategic decisions.In his book called< Theory and Implications of Corporate Governance>,Oliver Hart considered that there are two prerequisites for the existence of corporate governance:first, it exits serious principal-agent problem among members composed of the business; second, it is impossible to solve the principal-agent problem by signing complete contract. Therefore, we should solve the principal-agent problem by signing incomplete contract which prescribes Objectives, principles, measures to the distribution of decision-making and dispute settlement mechanisms solve problems. Corporate governance possesses the characteristics of incomplete contract, which develops in accordance with company law and corporate regulations. Therefore, it is possible for us to coordinate the interests of all stakeholders in the company through corporate governance.As Coase in his paper'The nature of the Firm"pointed out, the fundamental purpose of existence of the business is to reduce transaction costs by replacing the price mechanism with the authority. Accounting information especially earning information plays an important role in the enterprise, because earning information is important for the stakeholders such as Shareholders, investors, suppliers and government departments et al.. Earning information the stakeholders get from the enterprises must be true to help them make decision. However, some enterprise often manipulate earnings in order to provide lower earnings quality, which not only caused huge losses to stock market and investors, but also brought hazards to National and socio-economic development. Finally, it must lead enterprises into trouble because of scarce resources in the community can not be effectively used.In order to optimize the efficiency of the allocation of social resources, we must raise the company's earnings quality, which can provide real earning information for stakeholders to make decision. Because of the existence of agency relationship and the information asymmetry, minority shareholders and other external stakeholders are difficult to obtain real earning information about the company. We need to optimize the company's internal and external governance mechanisms in order to improve the earning quality, which can reduce the principal-agent problem in company and cause enterprises provide true earning information. So stakeholder should make decision to invest surplus funds to companies with high efficiency and company can also use resources effectively in order to obtain more capital from investors, which can bring about optimal allocation of resources.Previous studies have shown that corporate governance mechanisms can play roles in reducing agency costs, improving company performance, and optimizing resource allocation et al.. But the question that corporate governance is how to plays roles in optimizing the efficiency of resource allocation is not researched. Therefore, from the view of earnings quality, we want to research internal and external governance mechanisms is how to improve earnings quality. With the high earnings quality, we want to know whether the efficiency of resource allocation is optimized.With the question we are confused and wanted to research, we plan to six chapters to analyze and research the question.The first chapter is an introduction. In this chapter, firstly, we discuss the theme and significance of this paper; secondly, we provide the research process and the major findings; thirdly, we describe the main research methods used and the innovation of this paper; finally, we show the overall arranged structure in this paper.The second chapter is theoretical basis. In this chapter, from the traditional information theory and views of contracts and the extended theory of the concept of resource allocation, we propose the function and role of earnings quality. Meanwhile, we give the definition of key concepts.The third chapter is the literature review and theoretical basis. We reviewed the literature from three aspects, which are the relationship between internal corporate governance and earnings quality, the relationship between outer corporate governance and earnings quality and the relationship between earnings quality and efficiency of resource allocation. This literature and theoretical analysis set up the base for the research behind.The fourth chapter is the analysis between internal governance mechanisms and earnings quality. We know that internal governance mechanisms obtain three main aspects, which are Ownership structure, board characteristics and management incentive. Firstly, we suggest six hypothesizes based on the analysis and literature; secondly, we collect data from 2004 to 2009 in the listed companies in the stock market of China to research by panel data regression in order to test hypotheses. Finally, we summarized this chapter.The fifth chapter is the research on external governance mechanisms and earnings quality. In this chapter, at first, we defined index of regional financial ecological environment as a factor of external governance mechanisms. Then we propose hypothesis, define variables, design models and regress the variables by panel data successively. Finally, we get the conclusion of this chapter.Chapter six is the economic result of earnings quality. In this chapter we are tying to find out whether high earnings quality can improve efficiency of resource allocation from invest efficiency of enterprises and financing efficiency. Then we propose hypothesis, define variables, design models and regress the variables by panel data successively. Finally, we summarized this chapterChapter seven is conclusions, implication and prospects. This is the last chapter of this paper. First, we summarized the conclusions we get before; and then we propose the policy recommendations according to conclusions; finally, we point out the lack of research in this paper and the field of future research.This paper reached the following conclusions by the content of above arrangement:(1) Optimization of internal governance mechanisms can improve the quality of earnings. We suggest that we take much importance to internal governance mechanisms including ownership structure, board characteristics and management incentive, which can play roles in high earnings quality.(2) External governance mechanisms can influence earnings quality. As one factor of external governance mechanisms, we find that regional financial ecological environment cannot improve earnings quality alone.(3) That improving the quality of corporate earnings is in favor of the optimal allocation of resources. We get the conclusion that improving earnings quality can reduce the inefficiency of investment, but also reduce the company's financing costs.The main innovations of this paper are: (1)In this paper, we research the relationship between corporate governance and earnings quality, and then we also find out earnings quality cause economic consequences that is efficiency of resource allocation. It is said that earnings quality act as an intermediary between corporate governance and efficiency of resource allocation.(2)Researching on the relationship between corporate governance and earnings quality, we consider not only internal corporate governance which includes ownership structure, board characteristics and management incentive, but also one factor of external corporate governance. First time, we think regional financial ecological environment as external corporate governance, which enrich the literature on corporate governance mechanisms and earnings quality. Meanwhile, we should systematically consider factors influencing earnings quality from internal and external corporate governance.(3)We systematically research the economic consequent of earnings quality from invest efficiency and financing efficiency. We also research the nature of the final controller in enterprise how to influence earnings quality and efficiency of resource allocation.
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