Correlation Analysis Of Earnings Quality And Stock Returns On GEM

Surplus is the outcome of the reaction of business and important index to the listedcompanies and the securities regulatory authorities when making decisions, some of thefrauds in the stock market in recent years have emerged so that people generally begin to payattention to the earnings quality, GEM market operation has been nearly three years andexperienced the ups and downs of stock prices, What’s the relationship of the earning’squality and stock return?From the perspective of decision’s usefulness, the article study the concept,characteristics, influencing factors and evaluation methods of the earning’s quality. Thisarticle design eight financial indicators and use comprehensive evaluation of the coefficient ofvariation to evaluate earning’s quality. Then discusses the meaning and representation of stockreturns and theoretically discoursed the relationship of the earning’s quality and stock returns.The empirical part of the article select150companies listed on the GEM as sample,using the surplus-income model, show that the earnings quality and stock returns ofcompanies listed on GEM is positively related,but little explanatory power of earning’squality on stock returns, the earnings quality authenticity and stock gains rate is not related,cash safeguards and stock gains rate is not significantly related，earnings persistence and stockreturns is negatively related, earnings growth and profitability have a significantly positivecorrelation with stock returns，earnings security has a significant negative correlation withstock returns. The results show that GEM investors only pay attention to corporateprofitability and the level of growth, not care about profits of sales revenue and main business,are not concerned about the risk level of businesses and profits’ cash flow. The study showthat investors of GEM can not effectively distinguish between earnings quality and earningsnumber, which does not recognize the corporate surplus manipulation，so Investment there isblindness. Finally, according to the findings and the status of GEM the author puts forward some countermeasures and suggestions, including the perfect New Issue of the GEM systemand information disclosure system, foster professional investment advisory agencies andsecurities analysts.