Research On The Relationship Of Earning Quality And The Capital Efficiency

Capital efficiency is not only the core of economics, but also the core of the current studies of corporate finance. The ability to raise fund with low cost and the ability to invest the fund raised in the right company or right projects, largely determines the company's performance and sustainable development. High capital efficiency is the key to gain a competitive advantage and sustainable development in the market. In recent years, more and more scholars began to attach importance to the capital efficiency. But most studies on capital efficiency is from the perspective of corporate governance, and less scholars directly study the relationship of earning quality and capital efficiency in specific system environment of China.Under the special environment of China, with a sample of listed companies in Shanghai and Shenzhen Stock Exchange in 2008-2010, this paper studied the relationship between the earning quality and capital efficiency. The conclusions are:first, earning quality has a significant positive correlation with the financing efficiency. The higher earning quality is, the higher financing efficiency is, which means improving earning quality can improve the financing efficiency. Second, the higher earning quality is, the lower under-investment and over-investment is, which means improving the earning quality can restrain the under-investment and over-investment, so as to improve the investment efficiency. In addition, the state-owned enterprises can enhance the positive correlation between earning quality and financing efficiency. The top ten accounting firm employed will strengthen the inhibition of earning quality on under-investment, but will weaken the inhibition of earnings quality on over-investment.Based on the above conclusions, this paper suggests that the listed companies shall improve their earning quality, and proposes some suggestions to improve the earning quality.Through this paper, hopefully, we can give some helpful empirical supports to reduce financing costs and improve investment efficiency for enterprises as well as theoretical basis for our government regulators to monitor the earning quality and improve capital efficiency of listed companies in China's special capital market.