Empirical Research On The Scale Of Related Party Transactions Of Listed Companies And Earnings Quality

In China's stock market. as listed companies are mostly established by restructuring quality assets of state-owned enterprises, leading to the emergence of a large number of affiliated transactions between the listed company and its parent company, the phenomena that the parent company impropriates a large amount of funds of listed companies through affiliated transactions have emerged, which seriously affected the earning quality of listed companies. This paper is to conduct empirical research into the relationship between the affiliated transactions and the earning quality of listed companies, design the evaluation indicators about the size of affiliated transactions and earning quality, and observe the linear relationship between them by taking samples from Shanghai Stock Market in 2004.The author first looks at the definitions and various reasons about affiliated transactions and through analyzing relevant documentation, finds out that the special occurrence of related transactions in China arises from both the restructuring of state-owned enterprises and legal loopholes. Then, from the obvious differences between economic, finance and accounting theories that explain earnings, the author points out that the contemporary model of accounting earnings, based on accrual basis for accounting and historical-cost system, could hardly show the level of earnings' quality. The quality of accounting earnings is influenced by many factors like definition of earnings and its objective, as well as the qualitative characteristics of accounting information and the functional theory of earnings. Finally, considering that this paper is to research into the impact of related transactions to the earning quality of listed companies, the author takes "cash guarantee" as the evaluating standards of the earning quality of listed companies, designs two parallel indicators to analyze with sample data, and comes to the following conclusion: there exists no significant correlation between the size of affiliated transactions of listed companies and the company's earning quality, and the earning quality of listed companies has been substantially enhanced through strengthened administration in 2004.