Empirical Study On Value Relevance Of Earnings Structure Of Listed Company

The stock market is an information-sensitive market,the stakeholders keep track of operating performance of listed companies mainly by the disclosured accounting information which is the core content of the information disclosure of the listed companies in the security market.Therefore,only if the high quality accounting information can reflect the operating situation and operating risk of the enterprises truly and help the investors and other stakeholders to make rational decisions,and ultimately to promote the sound development of capital market.Many countries revise and perfect their accounting standards continually in order to improve the content of the accounting informations,on February15,2006,China’s Ministry of Finance issued the New Accounting Standards for Enterprises which are fully aligned with the International Accounting Standards and officially implement in listed company in2007.The new criteria was more emphasis on the usefulness、authenticity and fairness of accounting information,focusing on improving the quality of accounting information so as to promote the efficient allocation of resources and supply more useful information for investment decisions of investors.Accounting information has become more and more important in the development of China’s capital market and accounting reform,so having a comprehensive analysis for accounting earnings in the capital market is an urgent need and has important theoretical and practical significance.Surplus data of listed company has been the focus of investors in stock market,the importance of surplus data has increased the motivation of earnings management that will decrease the earning quality of listed company.According to this problem,almost all countries will require the listed companies to disclosure their accounting earning with certain steps in order to identify the real situation of earning quality.Therefore,in order to reflect the company’s earnings quality more accurately during the study of value relevance of accounting information,we must not only consider the vulnerable to manipulation of net profit,but also the components and their proportions of net profit.To this end,this article research the value relevance of summary surplus and structural surplus under the New Accounting Standards for Enterprise in China’s capital market,the detailed chapters of this paper are as follows:Chapter1:Introduction.First this chapter introduce the research background and significance of this paper based on China’s current state,then describe the research idea,framework and method,present the contributions and shortcomings of this paper in the end.Chapter2:Literature review.This chapter describe the theoretical and empirical research results of the domestic and foreign scholars about the value relevance of accounting earnings,earnings structure and loss companies.We find that the research about value relevance of accounting surplus has caused wide concern in accounting academia and made quite a number of important achievements,but the special literatures about information content of earnings structure are relatively few,started later and uncomprehensive,also there are more theoretical studies than empirical studies.Chapter3:The theoretical basis of value relevance of earnings structure. First,this part describe the meaning of the value relevance of accounting information,then discuss the mechanism of accounting information from three angles:information perspective,pricing perspective and contract perspective.and discuss the basic theory of capital markets by the Efficient Market Hypothesis, Functionl Fixation Hypothesis and Capital Asset Pricing Model.Finally,this chapter analysis the system background of value relevance of earnings structure.Chapter4:Empirical research.The empirical research takes the listed companies from2007to2010as samples,this part introduces the sources of the research data,research assumptions,research variables.and establish some research models for the empirical test,we come to the following conclusions from the descriptive statistics,correlation analysis and regression analysis:First,The strong and stable explanatory power of summary earnings to stock price shows that the summary surplus have significant value relevance,it can pass useful information about stock market to the investors. Second,decomposing the summary surplus to specific items will improve the explanatory power of earning to price and be more helpful for the investors to analyze and judge the value of the company and make more rational investment decisions,this part proved the value relevance of the earnings structure are higher than the summary surplus.Third,The relationship between the negative surplus and stock price becomes very weak,the low goodness of model and insignificant regression coefficients of explanatory variables prove that the earnings of loss companies have no value relevance,but there are still earnings decomposition effect in loss companies.In addition,the paper also prove that the gross profit have more marginal information content than operating profit,the income and cost decomposed by operating profit are significant different in value relevance:the income items can explain the value of company more efficiently than the cost items.Chapter5:Research conclusions and policy recommendations.This chapter summarize the conclusions of empirical study and give some constructive suggestions on how to improve the value relevance of accounting information based on the actual situation of China’s stock market.The main contributions of this paper are as follows:First,this paper both study the influence of the summary surplus and structural surplus on stock prices by empirical research and the value relevance of loss companies,not only the range of study is comprehensive but also have a new perspective of earnings structure to study the value relevance.Second,this paper decompose the summary surplus to structural surplus from different perspectives in the index design of earning structure,the conclusions of this article will be more authentic and stable by the study of value relevance of the net profit,gross profit,operating profi,the income and cost.Third,the paper takes the listed companies from2007to2010of New Accounting Standards of Enterprises as samples,the results of the research can provide strong evidence for the implementing effects of the new standard and test the long-term effects of the structural earnings to stock prices of listed companies.Fourth, This paper gives some constructive suggestions on how to improve the value relevance of accounting information based on the conclusions of empirical study which are great useful for the development and improvement of the capital market.There are also many limitations in this paper because of the lack of time,capacity and conditions: First,in this paper,the Level Model is the only research model for the empirical study,the results of study by Level Model may be biased because the existence of scale effect.Second,this paper does not consider the impact of industry on the effectiveness of accounting earnings,the future studies can further divide the samples according to the industry to obtain more accurate conclusions.Third,there are a lot of factors that will affect the value relevance,such as the psychology of investors,the policy promulgated by the government,corporate restructuring,so this paper have many inherent limitations because not all factors are included in the study.