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An Empirical Study Of Accounting Earnings Conservatism Of Listed Companies In China

Posted on:2007-03-11Degree:MasterType:Thesis
Country:ChinaCandidate:C A ShuFull Text:PDF
GTID:2189360215975970Subject:Accounting
Abstract/Summary:PDF Full Text Request
Attention has been paying to the principle of prudence just from about ten year ago in our country. Accounting Standard for Business Enterprises, implemented in 1993, regards the principle of prudence as the primary principle on accounting recognition and measurement. From then on, more and more emphasize has been given to the principle of prudence with the perfectness of our accounting standard. The new standard issued in 2006, give a definite conception of basic dealing principle on all impairments of the assets, and give a much more exact definition on the detailed scale, the pre-condition of assets devalue test, the means of distilling provision of impairment of assets and goodwill, from which we can see our government's emphasize on the principle of prudence. But, it seems that listed companies do not pay enough attention to the principle of prudence from the respect of the increasing accounting fraud in our security markets.Based on the study of the definition of the earnings conservatism and the factors that affect it, this paper explains the accounting earnings of our listed companies in details from three different respects that are related to each other. Our results provide evidence on positive relation between accounting earnings and stock returns and are consistent with bad news being reflected in earnings in a more timely fashion than good news, as proxied by negative and positive stock returns. That is to say, conservatism exists on the accounting earnings in general.This paper investigates the relation between current and lagged changes in earnings to examine whether "bad accounting news" proxied by a decline in earnings, is more likely to reverse, as compared to "good accounting news" (an increase in earnings). Our results indicate conservatism through the asymmetric persistence of earnings increases and decreases, and verify the prior conclusion. In our final test of earnings conservatism, we find that the relation between the change in operating cash flows and current period accruals is negative correlation which may indicate conservatism is present. However on expanding the model to incorporate a dummy variable for whether the change in cash flows is negative and an interactive slope coefficient for the negative changes the result fail to consistently document and inverse relationship between changes in cash flows and accruals as we expected. This may imply that the extent of conservatism is different between the firms with cash flows decreasing and increasing. When we study accounting earnings of the firm with cash flows decreasing, we should pay more attention to the cash flows because of its supplement function to accounting earnings information. We make sensitive analyses on our all tests according to the size of the assets. The results show that the sizes of assets basically have no affect on our tests in the securities business.Finally, we summarize the shortage of the study in this paper and open up prospects for the direction of study for the future. We expect that this paper can make building action on financing analysis and earnings forecast in our securities business.
Keywords/Search Tags:Conservation, Timeliness, Persistence, Accounting Earnings, Cash Flows, Accruals
PDF Full Text Request
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