Research On Earnings Quality Of Listed Companies

China's capital market is a emerging market, earnings is taken as judgment index on these regulations stock issue, stock listing, rationing shares or delisting. Just because of this, the phenomena of earnings manipulation is very general. Since 1992, our capital market continuously occurred a series of accounting information fraud cases. As same as China, more mature countries such as America also appeared this kind of events. This phenomenon urged accounting information users highly doubted the truth and the reliability of nominal earnings. Under this background, theory circle paid close attention to earnings quality research. At present, earnings function theories mainly includes the following viewpoints:information perspective, valuation perspective and contract perspective. However, these viewpoints mainly emphasized nominal earnings research and excavate deeply the usefulness of earnings quality. In view of this, this paper holds that earnings function theories should be further expanded: that is we should turn to study earnings quality from nominal earnings and the research on earnings quality should be independent from current research. Earnings function theory was first proposed in the fields of accounting, whose purpose is to answer the question that"whether accounting information is useful and what the usefulness is", which has no response to the hot issues of current capital market. Actually, there are some deeper questions behind earnings function research, such as stock wrong pricing , lower capital allocation efficiency of listed companies, etc. On this background, the paper will further expand earnings function theory to make our capital market better.The paper carries out research according to earnings function theory mainly from the perspective of finance. To provide theoretical support and empirical evidence for listed companies and investors, we will explore scientific calculation Method and usefulness of earnings quality. The main research contents of the paper are as follows: Literature review about earnings quality research, theory frame formation of earnings function, earnings quality measurement of listed company, the relationship between listed company's earnings quality and stock price, the relationship between listed company's earnings quality and capital allocation efficiency, research conclusions and policy suggestions. To be specific, the paper can be divided into six parts:The first part: Literature review about earnings quality research. Through reviewing related literatures about earnings quality systematically, this part educed the focus the paper wants to discuss.The second part: Theory frame formation of earnings function. At Present, earnings function theory obtained a series of achievements, but the author holds that this theory should also be expanded from two aspects: Firstly, we should organically combine earnings function theory with accounting objective and accounting theory system; Secondly, we also should pay more attention to earnings quality research and the research on earnings quality usefulness should be independent from current earnings function research. On this basis, the author expanded the traditional earnings function theories, which is composed of the following viewpoints: Capital allocation perspective, contract perspective, information perspective and valuation perspective. Accordingly, the following contents should be included in the research on earnings quality usefulness: Earnings quality and capital allocation, economic consequences of earnings quality, earnings quality and stock price.The third part: Earnings quality measurement of listed company. Achievements about earnings quality measurement were rich, the most representative measurement methods were: measurement from the perspective of earnings information quality characteristic, financial statement and capital market. Through comparing with various measurement methods, this part adopted discretionary accruals to measure listed company's earnings quality. Based on this, this part analyze earnings quality of our country's listed companies during the course of accounting standards changes. In addition, this part also furtherly analyze earnings quality of our country's listed companies after new accounting standards implementation, which, in terms of concrete contents, can be classified into truth of earnings, realizability of earnings and sustainability of earnings. The forth part: Listed company's earnings quality and stock price. According to the idea of information perspective, earnings quality has the function of signal transduction,but traditional research didn't answer this question clearly. Market reaction of earnings information includs two aspects: quality and quantity. Most research literatures about earnings response coefficient aimed at comprehensive index of listed company's earnings, but special study on market reaction of earnings quality is comparative little. In this part, the author mainly investigated the effect of earnings quality in stock pricing. After controling other factors (such as net assets, intangible assets, capital structure, firm size ), the author found that high negative correlation existed between earnings quality and stock price,which shows that there are stock mispricing phenomenon exists in our capital market. During the entire circulation time, non-tradable shares can be traded on secondary market, those controlling shareholders of low earnings quality listed companies had strong motivation to control accounting earnings. So, compared with the split Share Structure time, the problem of stock mispricing will be more prominent during the entire circulation time.The fifth part: Listed company's earnings quality and capital allocation efficiency. In this part, the usefulness of earnings quality was extended to the field of real economy from the field of fictitious economy. Specially, the author studied whether earnings quality can improve capital allocation efficiency and how to improve it. Through the investigation of China public listed corporations,we proved that : On the one hand,high earnings quality can improve capital allocation efficiency directly; On the other hand,through reducing agency costs,high earnings quality can improve capital allocation efficiency indirectly. All of the research conclusions showed that earnings quality was the key influencing factor of capital allocation efficiency. By comparison with western developed countries,low capital allocation efficiency was the biggest problem of China stock market. In order to improve our Chinese capital allocation efficiency,some measures should be taken:Firstly,we should strengthen information release,expand profession analysts group and develop institutional investors;Secondly,because of the significant mediator effect of agency cost,we also should perfect management compensation contract and take earnings quality as important foundation of the contract.The sixth part: Conclusions and policy suggestions. This part summarized main viewpoints of full text and proposed corresponding countermeasures and suggestions.The main innovations are as follows:Firstly, the paper defined the concept of earnings quality scientificly and rationally. Before analyzing on listed company's earnings quality, we must deeply understand what is earnings quality. Considering of the different research purpose and methods, this paper proposed definition from two angles: Normative research and positive research.Secondly, the paper constructed theory frame formation of earnings function. Traditional earnings function theory ignored the usefulness of earnings quality, we holded that this theory should be expanded furtherly, it should be organically combined with accounting objective and earnings function. On the basis of this, this paper presented a perfect theory frame formation of earnings function, which achievedt innovation in two aspects: On the one hand, we should organically combine earnings function theory with accounting objective and accounting theory system; On the other hand, we also should pay more attention to earnings quality research and the research on earnings quality usefulness should be independent from current earnings function research.Thirdly, the paper provided empirical evidence for the listed companies of emerging-market and transition countries and draw a conclusion which is different from mature capital market. According to the theory frame formation of earnings function, this paper carried out empirical test for the relation between earnings quality and stock price. The results showed that, earnings quality had an most important important influence on stock price, but the author also found that there was high negative correlation existed between earnings quality and stock price,which shows that there are stock mispricing phenomenon exists in our capital market. This conclusion was usefull to other emerging-market and transition countries.Forthly, the paper extended the usefulness of earnings quality to the field of real economy from the field of fictitious economy. At present, empirical literatures mainly concentrated on the research of"earnings information's value relevance". Holthausen & Watts(2001)indicated that, although the purpose of these literatures were not the same, the adopted models were similar, the origin of"earnings information's value relevance"was all kinds of securities pricing models(Beaver,2002). The author considered that taking securities pricing model as general model hindered the development of earnings fuction theory to some degree. The empirical test of earnings fuction should include two branches: one branch, we should test whether earnings can affect stock price, whose general model is securities pricing model; the other branch, we should test whether earnings can affect capital allocation, whose general model is capital allocation efficiency model.Fifthly, the paper broke the subject boundary , and adopted mediator effect test procedure which was firstly proposed by Wenzhonglin et al.(2004) in the field of psychology. The author used this test procedure to test the mediator effect of agency cost between earnings quality and capital allocation efficiency, which reduced type 1 error rate and type 2 error rate. Moreover, this kind of test procedure also accurately grasped the influence of earnings quality on capital allocation efficiency and action mechanism.