The Study Of The Empirical Analysis Of The Nonlinear Model Of Earnings Response Coefficients

This paper studies the empirical analysis of the nonlinear model of ERC andwhether the market is able to distinguish the sustained earnings or not in China.Firstly the paper describes the background, the purpose and the significance ofthe study and gives the framework structure and the technology roadmap of the paper.Secondly, it conducts a literature review of the linear model and the nonlinear modelof ERC based on the research of previous scholars. This part also summarizes thepre-research of the author of ERC. Thirdly, the paper studies the theory of the linearmodel and the nonlinear model and listed the concepts of the related terms. Then, thepaper gives the model design, the research methods, variable treatment, as well as theempirical research of linear and nonlinear models. At the end of this article comes theconclusion and summarizes the innovation of this paper and gives the lack of thispaper. This part recommends the improvements for future research.In the empirical analysis section of this article, the author selected the data of thelast five years,2007-2011, Shanghai and Shenzhen A-share manufacturing enterpriseslisted companies. There were3126(and3106) samples overall. Linear and nonlinearregressions were done on the data, while Shanghai and Shenzhen Stock Exchangewere done respectively. Regression results show that ERC has the characteristics ofnonlinear. After that, the concept of continuing earnings was taken into consideration.Profit from principal operations was considered as the continued earnings and linearand nonlinear regression were done on these data. It came to a conclusion that,Chinese market could not widely distinct continued earnings and temporary earnings.In the following empirical study, the regression sample was divided into sixsegmented range and did the same regressions with the segmented data, including thelinear and nonlinear regressions. Comparing with these results, ERC has thecharacteristics of nonlinear in the segmented range and investors in our country candistinguish between continued earnings and temporary ones.This paper proposes three assumptions. These are,“total nonlinear on ERC”,“portion nonlinear on ERC” and “investors in our country can distinguish betweencontinued earnings and temporary ones”. The paper comes to a positive conclusion.