Relevance Of Accounting Information And Stock Prices Of Listed Companies In China Based On The Residual Income Model

Using Ohlson(1995) residual income valuation model,we empirically examine the value relevance of accounting information(especially of residual income and net assets) of Shanghai stock market.In addition,the effects of negotiable share ratio,size and the funds' holding percentage on price are also discussed.Research shows that:1.Residual income and net assets have positive and significant value relevance. Compared with residual income,net assets have greater incremental value relevance. Correlation between net assets and stock price is always approved by significant tests, which is different with residual income.It indicates that,as abnormal earning,residual income is not durative.Investors have a good understanding of net assets.2.The value relevance of accounting information in information technology is higher than that in manufacturing.The pricing multiples of residual income in information technology are bigger than that in manufacturing.This suggests that investors expect that higher technology content will make greater contribution to firm values.Also,it may relate to the investors' preference of high-tech stocks.3.Net assets,residual income,negotiable share ratio,size and funds' holding percentage all have value relevance.Size and negotiable share ratio have significantly negative effects on stock prick,while the funds' holding percentage has significantly positive effects.Because of advantages in resources and information processing, institutional investors could find out more factors that may affect stock prices.4.The value relevance of accounting information has obvious stage characteristics. Residual income is more sensitive to different periods of stock market.Particularly in the stock price to rise,the correlation between residual income and stock price was very low,while the incremental value relevance of residual income was even below zero.It indicated that the stock price may departure the intrinsic value.5.The value relevance of accounting information is also influenced by accounting standard changing.In 2007,because of the fair value in new Accounting Standards, the pricing multiples of residual income are bigger than that of net assets.Through the study of value relevance of accounting information,we also hope to provide reference for integrating the nation's accounting principle with international standards.