A Study On The Influence Of Earnings Quality On Firm Value

From the very beginning, Earnings information is the focus of shareholders. Earnings information is the core of financial information delivered to the public. Either in developed Capital Market-the US Capital Market or in the developing Capital Market-China Capital Market, startling financial fraud cases have had been reported more than once. With more and more cases exposed, investors begun to think over whether it is proper to focus on the quantity of earning. Then, researchers turn their interests from quantity of earning to quality of earning. Literatures on earnings quality emerge. Domestic researchers study Earning quality of Chinese Security Market with western Earning quality metric and draw some conclusions and propose some advices. High quality of earning information is an efficient method to relief information Asymmetry to provide a clear scenario to investors. It helps to achieve the coincidence between accounting revenue and economic revenue. Therefore, high quality of earning information leads to a higher firm value.We summarize relating literatures on earning quality in front part of this paper. Then, we introduce theories on earning quality and firm value and define the definition of earning quality and firm value of this paper. Based on the theories described, we analyze the relation between earning quality and firm value in a theoretical manner. To ensure the correctness of the theoretical analysis, we set up an empirical study to testify the hypothesis. In this study, we select some financial data of manufacture listed companies as a sample from the period 2007 to 2010 with modified DD model testing earning quality. Then, we structure the relationship between earning quality and firm value and test the correlation of them. Lastly, we draw a conclusion that high quality of earning leads to higher quality of firm value, in deed. Based on the results drawn above, we propose some advices.