Empirical Research On Information Content Of Basic And Diluted Earnings Per Share

In recent years, with the continuous development of the securities market of our country, the convertible bond, stock options, warrants appear constantly. The CSRC will continue to formulate relevant documents and increasingly legitimate the issues of the convertible bond, stock options and warrants. For international convergence of accounting standards, but also in order to list the dilute securities into the calculation of diluted earnings per share and make the calculation, presentation and disclosure of the basic earnings per share more scientific and reasonable, our ministry of finance promulgated the new system of accounting standards on February 2006. It included the Accounting Standard for Business Enterprises No. 34——Earnings Per Share and required all listed companies to come into operation in January 1, 2007."Earnings Per Share Accounting Standards" require that enterprises should be separately list the basic earnings per share and diluted earnings per share based on the net income in the income statement,and in the financial statements footnotes disclose net income , the weighted average number of ordinary shares and their calculation. Since then, some domestic scholars from the normative perspective studied the calculation and disclosure of basic earnings per share and diluted earnings per share. But after the implementation of the new accounting standards, the research of information content of accounting earnings and the research results were rare. Based on the above considerations, this paper takes A-share companies listed as researching sample and uses empirical method to study the differences between basic earning per share and diluted earning per share of information content. In the process of research, the article firstly elicits the motive of the research and research significance and describes the ideas and research framework of this article. Secondly, it sets forth the efficient market hypothesis and the theory basis of the relationship between accounting earnings and stock price in detail. It also defines the meaning of information content and expounds the significance of the information content of accounting earnings. Thirdly, it reviews the relative researches on the information content of accounting earnings domestic and abroad. It expounds the detailed content of the relative literature about the earnings per share, classifies, compares and evaluates all the opinions. Fourthly, it reviews the definition of basic earnings per share and diluted earnings per share and analysis the information of the earnings per share and diluted earnings per share. Fifthly, based on the related theories and literature review, it puts forward research hypotheses. It introduces the selection of sample and the source of data . Then it designs the model, analyzes the variable statistically and regresses the model. Finally, on the basis of regression analysis, the article draws the empirical conclusion.The results indicate that the indexes of basic earnings per share and diluted earnings per share have the information content relevant to the stock market and there are differences in the information content of them. Especially the paper shows that diluted earnings per share have extraordinary information content than earnings per share disclosed in the financial statements. It can be said that the diluted earning per share which excludes extraordinary earnings is informative to investors.