An Analysis On The Relationship Between Extraordinary Items And Stock Price Of Chinese Listed Corporations

The earning quality of Chinese listed corporations is not satisfactory for a long time. The market was taken advantage by bankers while no proper protection can protect the interest of investors. The resource allocation can't be best used. The capital quality and earning ability don't match the variation of stock price. Hence, for the kinds of problems evoked by the listed corporations, Chinese SEC enacted a series of constitutions and regulations. Extraordinary items have no relationship with the ordinary manufactory deals and activities with the unique characteristic of infrequency of occurrence and unusual nature. For the special characteristic, extraordinary items are often be used to do profit adjustment. Thus it is an important way to do earnings management. Owning to the behaviors done by listed corporations, Chinese SEC urged listed corporations to disclose "earnings exclude the extraordinary items" in 1999. However, many listed corporations didn't disclose this guideline in accordance with SEC. In 2001,SEC mandated (No.l question about standard disclosure for open-published bonds in listed corporations-extraordinary items, which listed the including items in detail. However, due to the misunderstanding of the detailed items by various listed corporations, the execution outcome was not very satisfactory. In 2004,SEC modified 《No.l question about standard disclosure for open-published bonds in listed corporations-extraordinary items》 and listed more detailed items.Beginning with the special circumstance in transfer economy of Chinese stockmarket, the thesis illustrated the importance of enhancing accounting information quality and the reason of existing the phenomenon of using extraordinary items to do earnings management from three aspects: publication and accomplishment of constitutions and regulations in stock market, the state owned corporations reform & accounting principle reform and the unsatisfactory situation of corporation governance. In the second chapter, the thesis explained definitions of earnings earnings management extraordinary items and some reasons influencing stock price fluctuation. In the third chapter, based on the researches done by other scholars, the author discussed the necessity of the analysis on the relationship between extraordinary items and stock price in Chinese stock market. In the fourth chapter, firstly, by using statistics description, the thesis showed the situation of extraordinary items in the stock market from three aspects: the corporation number influenced by extraordinary items to net profit, the absolute and relative influenced number for occurred extraordinary items, secondly, by comparing the extraordinary items through the EPS in the listed corporations between (0-0.05) and (0.05-0.10),the thesis showed that the extraordinary items were an important way to do earnings management, especially for the small profit corporations. Finally, the thesis conducted the regression analysis based on stock price as dependent variable and extraordinary items as independent variable. It showed that our stock market is a subtle efficient market which the information about earnings and capital quality can only have little influence on the stock price fluctuation. Many investors on the market are irrational investors and many listed corporations manipulate earnings through extraordinary items. The phenomenon of faked net profit is very serious. It hinders the protection of investors' authorities reasonable resource allocation and development of stock market. Therefore, the author made several constructive proposals.