An Empirical Study: Impact Of The Earnings Predictability On Fair Value Measurement

On February 15, 2006, The Ministry of Finance released the new Accounting Standards System, and required the listed company to implement from January 1, 2007. There are many differences between the new Accounting Standards System and the old one, the new Accounting System pays more emphasis on the convergence with international accounting standards. The highlight of this change is the usage of the Fair Value, and this is the breakthrough in the measurement of historical cost. Fair Value measurement pays more emphasis on reflecting the actual true value of assets and liabilities, and reflects the changes in fair value on the net profit. This will have a significant impact on the listed companies'net profit. Based on this, this article will analyze the effects of fair value and historical cost profits to listed companies, while the investors are most concerned on the profits, by investigating the profits, we can understand the earnings predictability of the listed company timely.Based on the background described above, the relative research results are used for reference in this paper. For the users of the accounting information, they put a lot of attention on the profit of listed companies. Firstly, if the use of fair value will enhance the profit fluctuation of listed companies or not is reviewed. Secondly, based on the fact that fair value will bring profit fluctuation if the fair value information provided by the listed companies in China will have effect on the predictability of accounting information or not is further checked. The results of my research are as follows:①At first, the deviations of ten periods under two different measurement attributes are calculated using selected samples from 435 listed companies, of which represent the profit fluctuation under two measurement attributes. Then, by using non-parametric test and parametric test,the result is gotten which the profit fluctuation under history cost measurement is larger than the profit fluctuation under the other measurements.②After further screening of original samples, by using FOSTER Quarterly earnings forecast model from Box-Jenkins model to examine the earnings predictability. In this paper, by using regression model to the whole samples and grouping samples,the fact that the earnings predictability of the whole samples under the history cost attribute is higher than that of the whole samples under the fair value attribute. Meanwhile, the whole samples were separated to trisection by the proportion between Gain/loss of the change of fair value and the net profit. The fact that the earnings predictability of the whole samples under the history cost attribute is higher than that of the whole samples under the fair value attribute is also found. And the smaller the proportion between Gain/loss of the change of fair value and the net profit is, the larger the earnings predictability is.In conclusion, the market is not well prepared for using fair value, and because of the complicity and uncertainty of fair value attribute,if the listed companies just blindly use fair value attribute, the Gain/loss of the change of fair value will be accrued a lot, which will enhance the profit fluctuation and reduce the predictability of accounting earnings.