Accounting Conservatism, Earnings Persistence And Market Reaction

With the constant development of Chinese capital market and increasing of relatedstudies about listed companies’ earnings，the earnings persistence research has increasinglybecome a focus， but China’s expertise on the earnings persistence and the market reactionis not much. In this background， the paper chooses the earnings persistence and its marketresponse for the study，and hopes that this study can contribute to the better understandingof the behavioral characteristics of China’s capital market. On the basis of existingresearch， this paper established research framework and proposed hypothesis. With382listed companies as samples（data window is between2001and2010）， the paper testedthe relationship between accounting conservatism， earnings persistence and marketreaction. The empirical results show that:（1）Earnings persistence existed in China’s listedcompanies， and cash earnings persistence is larger than the accrued earnings persistence，operating profit persistence is larger than non-operating profit；（2） Only whennon-operating surplus is negative，investors will be concerned about the sustainability ofthe different components of earnings（operating profit and non-operating profit）；（3）Theprice does not reflect the differences between accrued earnings and cash earnings whichcontain different persistent information；（4）If accounting conservatism increase， thepersistence of cash earnings， accrued earnings and operating earnings will reduce，while the non-operating earnings persistence will have no significant change；（5）Theinteraction of earnings persistent and accounting conservatism to the stock price is notsignificant.Contrast with previous domestic research on earnings persistence， this research hasthe following three aspects of innovation（.1）This paper introduces the factor of accountingconservatism.（2）Based on innovation（1），analyze the impact of two groups， based onnon-operating surplus is positive or negative.