The Research Of Decision Usefulness Of Financial Information

Based on the aim of the preparer of the financial report and the financial report standard, the objective of the financial report is to provide financial information to the economic decision makers. Whether this objective realized from the view of the users of the financial report is a subject which need and has value to analysis and research through normal and empirical method. Many scholars from Chinese and other country have analyzed the relationship of the earning ratio and return of the company stock and prediction of the company financial distress or crisis etc. . But few scholars have focused on the process of financial information to analysis the usefulness of the financial information which are from preparing, transmitting to receiving and decoding for the using financial information to make reasonable decision. The literature on the usefulness of financial information from market other than stock market is not enough for the judgment of the usefulness of financial information for all the users of the financial report.For the decision makers, the financial information which demonstrate the past financial position and operation results of the company fulfill its'function through providing predicting base to the users for they can judge the future of the company and make economic decision. For this purpose, there are three demands to be met in the three steps of providing, transmitting and using: preparing fair value financial information, effective and efficient transmitting and professional decoding and decision capability. This thesis will focus on these aspects and devote the attention in the process of the financial information through which it fulfill its'function.This thesis is divided into eight chapters and the main contents and research conclusion of this thesis are as follow:In the first chapter, related knowledge is introduced for the analysis in this thesis will involve different subjects such as accounting, financial management, capital market, financial and economic management etc.. The fundamental function of decision usefulness of the financial information to the healthy development of the capital market even the national economy life is also analyzed in this chapter.The second chapter begins with the analysis of the fairness of financial information and impacts of the earning management and accounting fault on the fairness of financial information. Then the changes of accounting and financial report standards and its'impacts on the decision usefulness of financial information is discussed. Through the analysis and discussion, following conclusions are reached in this chapter: The unreasonable capital market structure and company capital structure may lead company to crisis by overtrade, irrational investment and other financial problem, and company may conceal the distress or crisis through creative accounting. Creative accounting is usually based on the bank, stock markets and other capital and money markets, so the promotion quality of the financial information is difficult to realize if the accounting itself is view as only reason and method to solve the quality problem of the financial information.Financial report standards are the bridges which lead the users understand the financial report as the meaning which the preparers want to express in the financial report, so the frequent changes of the Chinese standards since 1993 have impacts on the usefulness of the financial report.In the third chapter, the information transmitting under the IT condition and the understanding and using model of users have been analyzed combining with the efficient market hypothesis. The following conclusions have been reached in this chapter: Information technique provide convenience the transmitting of financial information, and at same time rubbish information and noise are transmitted easily. In Chinese stock market, many investor or potential investor are individual rather than institute, and the complexity of the financial information is beyond the comprehension capability and time cost of individual, so the understanding capability and usefulness of the financial information are impacted by this investor structure from the view of the whole stock exchange market.The forth chapter has focused on the aspect that different users such as investor and potential investor, loaner, employee and traders have different financial information demand and decision model, and initially analyzed from the distinguish a series of terms including company failure, financial distress, corporate crisis and bankrupt.From fifth chapter to seventh chapter, empirical analysis from three different aspects has been done. The three aspects are financial distress prediction, the financial index's information content in the Chinese stock market and relationship between bank loans and financial index. The sample is chosen from the ST(special traded) PLCs in 2006 which is listed in the Chinese stock market, and 94 ST PLCs and matched companies have been chosen. The results of this empirical analysis are listed below:1.Defined the ST PLCs as the distress company, the accuracy of the prediction based on the variable of financial index is blow 70% in the 5 years before loss appear, only in the first loss year , the prediction accuracy is above 80%. And the accepting error which is accept the ST company as the normal company is above the rejecting error which is predict the normal company as the ST company. This demonstrates that the usefulness of the financial information in the prediction is limited. The reason may lie in two facts, the first is the financial information itself which can not represent the company financial position, operation results and cash flow fairly, the second is that management has the well knowledge of the company and have restructured the company before it become financial distress company. Those two situations all did not support the hypothesis of the normal distribution which the prediction model based.2. Regression test which use the earning ratio and the ratios that represent financial information quality and financial risk as independent variables and use the return of the stock as dependent variable demonstrates that financial information can not interpret the return of the stock, and financial information has almost no information content for the stock market. For this result, the ST companies and non-ST companies have not significant difference.3. Bank as institute comparing to the individual has better capability to collecting, analyzing, dealing and utilizing financial information and makes more rational decision about loan to the company from the common sense. Based on this point, this thesis empirical tested the information content of the financial index in the loan market using the financial crisis probability which is calculated from the prediction model setup with logical regression method, earning ratio and the ratio of other receivable to total asset which represent the quality of the financial information in some extent as the independent variables, using the ratio of total of long and short-loan to the total asset as the dependent variable. The results are: independent variables can interpret the dependent variable which indicates that bank's loan decision rely on the financial information; at the same time the dependent variable are positive related to the probability of financial crisis which indicate the risk of the company, and negative related to the quality index of the financial information. The second result is inconsistent with the common sense may be leaded by the improper governance, internal control and inappropriate inspiration mechanism of Chinese bank which exist commonly.The eighth chapter summarized the whole thesis.The main viewpoints of this thesis:1. Superficially, the quality problem of the financial information is a accounting problem, but in essence it is result from the unreasonable and unsound corporate governance, improper corporate financial structure and related special financial circumstance etc.. Accounting is only a token, financial problem is the essence.2. Information transmitting in IT era for the usefulness of financial information is a double-edge sword. First the costs of transmitting have been lowered and accessibility of the users has been eased. Second rubbish information and noise are transmitted easily, the difficult and costs of choosing and recognizing have been enhanced, especially for the individual users. Under this situation, the institute users can get more advantages compared to the individual users.3. The three cycles which usefulness of financial information is involved are an organic system; each cycle has impacts on and functions to the other aspects. The promotion of the quality of the financial information and its usefulness involves the together action of the three cycles. If the inferior financial information can get extra return from the market which has been considered the costs of default of the accounting standards, related rules and regulations, the low quality information will be necessarily full of the markets under the rational person hypothesis. The phenomena of'inferior coin washout the fine coin'will appear in the field of financial information. The innovations of this thesis compared to previous literatures in this field can be summarized as: on the methodology of the analysis and research, this thesis understands and analyses the problem from the whole process which the usefulness of information is involved. And empirical test has been done from different aspects. This thesis also viewed the accounting problem and the usefulness of the financial information from the preparers themselves and based that they are all economical rational person.