Research On Information Content Of The Accounting Earnings After Deduction Of Extraordinary Items

As has been evident in recent financial reports, extraordinary gains and losses have been one of the methods, which can be used by a listed company to manipulate total profit in the financial reports. As a new regulation was put in force to regulate the publicity of accounting information in stock markets, all listed companies have to reveal the profits after deduction of extraordinary gains and losses starting from the annual report of year 1999. The detailed information on extraordinary items and EPS, which excluding extraordinary gains or losses, are also required to be revealed in the annual report. What are the actual effects of the regulation in stock market? This report set out to find out the attributes of the extraordinary gains and losses by studying the annual reports of some listed companies in Shanghai Stock Exchange. Through empirical study, it explored the information content of EPS which excluding the extraordinary gains or losses. The empirical analysis showed the EPS which excluding extraordinary gains and losses do provide stock price related information. Moreover, the data evidenced there are some added information values of this indicator. Thus, It can be said that the EPS, which excludes extraordinary gains and losses is informative to investors, since it is a valid representation of company's earnings. Lastly, the report conducted the cause analysis on the research results.