Research On Relationship Among Change Of Accounting Standards, Quality Of Earnings And Cost Of Capital

The new China Accounting Standards(CAS) went into effect in the listed companies sinceJan1st，2007. The new CAS not only accords with the international accountingconvergence but also retains Chinese characteristics. It is widely approbated in the world.There is a lot of research abroad on the relations of the adoption of internationalaccounting standards, accounting information quality and cost of capital and domesticresearch in this area is relatively less. Using the data of the financial statements, financialanalysis and stock trading, this paper takes a research on the relationship of the change ofstandards, quality of accounting information and the cost of capital. The cost of capital ismeasured by the internal rate of return which calculated by GLS model. The quality ofaccounting information is measured by discretional accruals which are calculated by Jonesmodel. This paper studies on the relationships of quality of accounting information and thecost of equity capital with multiple linear regression method.The study finds there is a remarkable increase in the quality of accounting information anda remarkable decrease in the cost of equity capital after the implementation of newaccounting standards. In the control of types of business, β, size, book market value ratio,growth rate, net return on assets, profit level, it shows that quality of accountinginformation and cost of equity capital is a negative correlation. Investors expect lowerreturns on sample companies of high-quality accounting information, and this result in alower cost of capital. This shows that high quality of accounting information helpscompanies to finance at a more reasonable price in the capital markets and to enhancecapital market efficiency. The conclusion of this paper supports the constantly revised andimproved of the accounting standards.