Empirical Research On Accruals Quality Of A-Share Listed Companies In China

Current financial accounting system bases on accrual basis and therefore the recognition of revenues and expenses is based on actual influence period instead of the time of cash collection and payment. For that reason, the recognition of accruals has to rely on the subjective estimation and judgment of the management and accountancy, which results in that the accruals deviates from the actual cash flow to various extents. The standard deviation of residuals in 5 years can be used to measure the quality of accruals. This dissertation is research on accruals quality of A-share listed companies in China.This dissertation mainly covers the following contents and conclusions: Chapter 1 is Introduction where the motivation, research subject, structure and main academic contributions of the dissertation are introduced and the relevant concepts are defined. Chapter 2 gives a description of the analytical basis and measuring method of accruals quality as well as the theoretical framework of the research. It also gives a review on the relevant literatures. In chapter 3, the corrected DD model is used, with the financial data from 1992 to 2004 as the samples, to measure accruals quality of A-share listed companies in China. An analysis on the time series trend and a further analysis on different industries are then have the results: the power, gas and water supply industry (Code D), construction industry (Code E) as well as transportation and storage industry (Code F) have better accruals quality, while the agriculture, forestry, animal husbandry and fishing industries (Code A) as well as dissemination and culture industries (Code L) have poorer accruals quality. In chapter 4, corrected Ohlson model is used to test the decision usefulness of accruals quality in the securities market. The test results show that accruals quality has positive correlation with stock price. The better the quality of accruals is, the higher the stock price. Moreover, as accounting information related earnings, accruals quality brings information increments to earnings, i.e. the better accruals quality, the higher the value-relevance of earnings. In chapter 5, accruals quality is regarded as an earnings-related information risk, and CAPM model is used to examine if the securities market makes a pricing. The result is that companies with poor accruals quality have higher costs of equity than those with good accruals quality, which shows the correct pricing made by the market. Chapter 6 is conclusion where the conclusionsof the dissertation are made and the limitation of the research and suggestion for further research are pointed out.The possible contributions and innovations this dissertation may make include: it is the first to study the accruals quality of A-share listed companies in China; it selects the financial data from 1992 to 2004 as the samples to measure accruals quality of A-share listed companies; it examines the association between accruals quality and stock price and finds that investors identify the listed companies'manipulation of accruals to influence earnings in the securities market. Companies with good accruals quality have a higher value-relevance for earnings. Thus, investors make different prices for companies with different qualities of accruals and earnings. This dissertation is also the first to demonstrate that investors price accruals quality which as proxy for the information risk associated with earnings. The poorer the quality of accruals is, the higher the information risk and cost of equity. So investors hope higher return.