An Empirical Research On The Relationship Of Life Cycle Of Enterprise,Accruals And Earning Persistence

Accounting earnings play an important role in financial reports. They are crucial forthe user of the financial statements. For the existing of earning persistence, investors canusually predict the future company status through the published accounting earnings inthe financial statements to make better investment decision. Therefore, the earningpersistence becomes one of the most important indexes of measuring the quality of thecompany’s earnings and the key of the scholars’ study.Scholars domestic and overseas did a great deal of research, from the definition ofearning persistence to dividing the earnings to different parts. They usually divided theminto two parts, the accrual component of earnings and the cash flow component ofearnings. Some divided accruals into discretionary accruals and nondiscretionary accruals,some even divided accruals into more parts. Then they did further research in everycomponent of the earnings. But the conclusions came to be the same, that there is earningpersistence, and the persistence of current earnings performance is decreasing in themagnitude of the accrual component of earnings and increasing in the magnitude of thecash flow component of earnings.On the basis of research achievements received by the scholars at home and abroad,we used the model Sloan (1996) used in this paper, and did our study with the sample ofChinese listed company from the year2000to the year2010. We also studied accruals,operating cash flow, earning persistence, and the impact among them. Compared withprevious studies, we innovatively introduced virtual variables of the change of accrualsand the life cycles in this paper, to test their influence in earning persistence model. Afterthe descriptive statistics, the correlation analysis, the regression analysis and thestabilization inspection, we concluded the following main conclusions:①Earningpersistence exists, and the persistence of the accrual component of earnings is bigger thanthat of the cash flow component of earnings.②After adding the change of accruals to themodel, the persistence of operating cash flow don’t have any change, while the accrualssustainability becomes smaller. And the goodness-of-fit are improved.③After addingthe life cycle variables, all the variables are still statistically significant, and the R2of themodel becomes bigger. Also, I summarized the limitations of my dissertation beforeending, with future research plans and my continuous concern on this topic.