A Positive Study On The Relationship Between Fair_value Accounting Information And The Liquidity Of Stock Market

Profitability, liquidity and volatility of capital market constitute three pillars for its effective operation. In capital market accounting researches, the study on relationship between accounting information and stock returns is generally referred to as value relevance study. Similarly, the study on relationship between accounting information and stock fluidity can be called a liquidity relevance study, which is also an important part of the usefulness and economic consequences of accounting information. Review of related literature abroad, we can find that the capital market accounting research is mainly focused on value relevance fields, but liquidity relevance study isn't referred to basically. Thus, a positive study on the impact of accounting information upon stock liquidity will have important theoretical significance.Meanwhile, China's new accounting standard has been issued in 2006, and fair value accounting has been massively enabled. Clearly, the use of fair value accounting has become an inevitable trend of financial accounting. However, the economic consequences of fair value accounting are far from being thoroughly researched, especially in terms to the liquidity relevance research, which still remains blank to date. The outbreak of the financial crisis in 2008 pushed the fair value accounting into the air waves, particularly in relation to its liquidity relevance, which suddenly becomes a pressing issue. In this context, the research on the liquidity relevance of fair value accounting information in China's A-share market will have a great practical meaning.Based on the theoretical and applied analysis of fair value accounting and stock liquidity, by adopting normative and empirical methods and using data in 2007 to 2009 annual and semiannual reports of China's Shanghai and Shenzhen A-share listed companies, this article studies the liquidity relevance of financial accounting information as well as the liquidity relevance and the incremental liquidity relevance of fair value accounting information by sector. We find that:①financial accounting information has a significant relevance, but the significant degree varies by industry;②the interpretation level of financial accounting information for stock liquidity is not very high;③fair value accounting information has negative liquidity relevance and the significant extent varies from industry to industry. Financial companies have the most significance, but utilities are not distinctive;④the incremental liquidity relevance of fair value accounting information shows conspicuous differences among industries. The utility companies have basically no incremental relevance, and the financial companies with very high incremental relevance;⑤the investors in China's A-share market are mainly the irrational risk-averse investors.Finally, according to the above conclusions, combined with China's A-share market, the article gives some useful implications.