Quality Of Earnings: Theoretic Analysis And Experience Evidence

Quality of Earnings: Theoretic Analysis and Experience Evidence As an important part of accounting information, accounting earnings havebeen concerned by shareholders, creditor and stakeholders. But an exclusive focus onearnings number and ignoring quality of earnings will weaken heavily the usefulnessof accounting earnings information. In the recent years, following a series of financialreporting fraud cases, issues about quality of earnings stand out increasingly. What isthe quality of earnings on earth? How to evaluate quality of earnings? Which factorsimpact quality of earnings? Whether China's securities market can pricing accuratelyon quality of earnings? This dissertation will discusses this issue, and providesexperience evidence from China's securities market about value relevance of earningsquality. This dissertation is composed of four chapters: Chapter 1 is an introduction of research meanings, research purposes, andprovides a preliminary organization framework.. In Chapter 2, the author review and summarize the relevant literature of homeand abroad about the measure of earnings quality and the usefulness of earningsquality, and prepare for the following positive research. Chapter 3 put up the theoretic analysis on evaluation benchmark and influencefactors of earnings quality. Firstly, deducing on the basis of decisive usefulness ofaccounting information, we conclude there are two evaluation benchmarks: earningspersistence and association between earnings and cash flow. Secondly, aiming at thesetwo benchmarks, the dissertation provides two evaluation ways in practice. The oneway is a direct evaluation based on financial data; the other way is indirect evaluationbased on stock price reaction. Finally, we think there are three factors impactingquality of earnings: corporation risk, subjective motivation of manager and charactersof accrual accounting. Chapter 4 focus on the value relevance of earnings quality. Firstly, our measure ofearnings quality is based on abnormal accruals. So, through Dechow&Dichev modeland John model, we obtain two proxy variables of earnings quality. And then, theauthor import this two proxy variables into price model( Feltham-Ohlson model), andthrough financial data of listed companies of china's material industry in the yaer2001,explore the relation between stock price and quality of earnings. our research indicates:although in the sense market can identify different components of net income, forexample, profit from operating and bottom-line income, domestic securities marketexist mis-pricing behavior on quality of earnings(profit from operating). The main contributions of this dissertation are: (1) defining clearly evaluationbenchmarks of earnings quality, thereby it provides a fundamental for evaluatingconcretely earnings quality; (2) Through empirical research, we find investors'understanding on earnings quality are superficial. It indicates China's securitiesmarket isn't reach the state of "semi-power efficient".