An Empirical Study On The Relativity Between Stock Price And Accounting Earnings & Cash Flows Of Chinese Listed Companies

Accountant information especially the efficiency of the decision on accounting earnings is the cornerstone of finance accountant. Given accounting earnings making no help to the investment decision, we can conclude there is no significance for finance & accountant to continue to exist Moreover cameralistics and investors, who pursuing "cash is king" and "invest strategy on free cash flows" consider it is nonsense.As a result, this paper aims at comparing the effect of both accounting earnings and cash flows to the Chinese stock market.According to the model of and Fel-ohlson model, we deeply analyze the relationship between accounting earnings and cash flows making contributions to demonstrating the alteration of stock price, as well as net assets and cash flows from operating activities to accounting earnings and the ability reflecting stock price respectively. To the end, we discuss the capability of securing abnormal return on the basis of strategy on "P/E", "P/B", "P/C" and invest portfolios. The analysis of "small enterprise effect" and its reason supports this paper's conclusion through empirically research. And the paper's discovery as following:1. The stock market can reflect the informative direction of accounting earnings generally, because the higher P/E means the increasing rate of earings return in the future.2. Our stock market is incapable of judging all accountant information, that is net assets and cash flows from operating activities cannot increase the ability of accounting earnings to explain stock price.3. Accounting earnings are still the main index on investment-decisioa Accounting earnings can explain the alteration of stock price more efficiently and adequately than free cash flows, as well as the significance regression equation.4. The investment portfolios based on "P/E", "P/B" and "P/C" strategies can get extra return. The "P/E" strategy is of the most significance , that means the sub-efficiency of Chinese stock market.5. This thesis finds some evidences to support Function Hypotheses (FFH) and the "small enterprise effect" and discusses the reasons. Meanwhile, the whole study provides an explanation and evidence of the low capability of accounting earnings in explaining the alteration of stock price. Finally, it puts forward advices in terms of political and legal respects.