Accruals, Accruals Quality And Investmen Return

With the economic marketing process, the financial information is an important basis for macroeconomic control and management. Investors use it to measure the performance of managers, creditors and the public use it to assess the company's financial position, to prevent the risk of default. financial information quality brings more and more attention in social. Quality of earnings can represent quality of financial information, and accruals quality is an important section of earnings quality. This article has introduced the measurement of accruals quality and studied the association between accruals quality and stock price/returns, and the association between accruals quality factor and stock returns.The financial data is derived from the Resset database, including the data of 1998-2009 Chinese A-share stock market. Because the calculation of accruals needs the previous period's operating activity cash flow and lagged cash flow, and the calculation of accruals quality involves a standard deviation of five-year's residuals, so in order to obtain the t accruals quality we should the t-5, t-4, t-3, t-2, t-1, t, t+1 a total of seven years data. This article obtains accruals quality between2003 to 2008. This article is ready to discover the industry characteristics of accruals quality, and the trend of accruals quality in 2003-2008; It also have a research at the association between accruals quality and stock price/returns, and the influence which differences between accruals quality to the EPS impact of stock price model. In addition, the last section of this article uses of traditional capital asset pricing model and Fama and French's three-factor capital asset pricing model to explore whether the accruals quality influents excess stock returns. Finally, in order to test whether accruals quality factor is priced, we use the most common method in the literature which is two-stage cross-sectional technique.The contribution of this article is:First, investors can obtain the information of accruals quality from the financial statement, they also can assess listed companies to invest stocks. Second, CPA can identify whether industries have manipulate the earnings in the securities market. Then if the method to measure accruals quality is known by everyone, industry's managements have to reduce earnings manipulation to improve the reliability of financial reporting.The research result concludes:1, Accruals quality and stock prices are negative correlation, accruals and stock returns are positive correlation. When we use earnings to forecast the stock price, the predictive power is stronger in the higher quality than in the lower quality.2, Accruals quality as the standard of stocks, we can see the higher accruals quality with the smallerβin the traditional capital asset pricing model, it also means companies with higher accrual quality, their equity capital cost is lower, investment returns is lower; companies with lower accruals quality, equity capital cost is higher, investment returns is higher.3, Accruals quality factor is calculated by low accruals quality stock group's average monthly returns minus high accruals quality stock group's average returns, there are 72 months accruals quality factor, the mean factor is a negative. Then add accruals quality factor to the traditional capital asset pricing model and Fama and French three-factor capital asset pricing model, quality factor in both models is significant, suggesting that accruals quality factor influents stock excess returns.4, with the method of two-step cross-sectional regression, it is discovered that accruals quality is a priced risk factor.