A Research On The Effect Of Earnings Quality To Stock Returns

At present, accounting theory circle and practice circle pay close attention to earnings quality together. This paper constructs index system to assess earnings quality from the perspective of financial statement analysis, this construct draws lessons from foreign method of assessments of earnings quality, combine the characteristic of China's securities market, set up the earnings quality comprehensive assessments index system of the Chinese listed company,. At the same time, this study examines whether earnings quality is related with the stock abnormal returns .This paper constructs the comprehensive assessments index system of company's earnings quality according to the financial statement that the listed company reveals publicly at first. The index system includes properties of earnings as follows: persistence, growth, smoothness, cash ensuring, safety, reliability, corporate governance and industry properties etc. Principal component analysis is used in comprehensive assessments of earnings quality. Then this paper study abnormal return on indexes of earnings quality using stepwise regresses model .Moreover, the paper analyzes the relation between earnings quality and earnings response coefficient, final work examines whether investors can earn abnormal returns using earnings quality analysis strategy.This paper regards the A-share listed companies of stock markets of Shanghai and Shenzhen among 2001-2003 years as samples and carries on the positive research, get the following conclusion: first, earnings quality is significantly positively associated with future stock returns; second, higher earnings quality imply higher earnings response coefficients; third, investors can earn abnormal returns using earnings quality analysis strategies; finally, Chinese securities market is not enough efficient.