A Study On Earnings Persistence Of Listed Companies Based On Cash Flow Information

Sustainable development as the premise of the company’s business philosophy or businessphilosophy, it has got much of the attention from the stakeholders. The persistent profit ability ofcompany undoubtedly become the focus of attention, but as the case of "financial fraud","maliciousearnings management" continues to increase and upgrade, the authenticity of the earningsinformation reflected in the financial statements often been questioned. So "Cash is King" isgradually being recognized and supported. Based on cash flow information to analyze the earningspersistence of company, it can effectively circumvent the corporate financial position ofconcealment and manipulation. It can conducive to information users more accurate grasp of the trueoperating results of the enterprise, and to accurately evaluate the sustained profit ability of thecompany.On the basis of access to domestic and foreign literature about earnings persistence Isummarized the related concepts of accounting earnings persistence, cash flow and capital markettheory. By qualitative analysis to describe the links and differences between accounting earnings andcash flow, and to explore the significance of cash flow information for evaluating true level ofearnings; to discusses cash flow should also be a persistent feature in the time series; accordancewith the accounting earnings property I decomposed earnings into two parts: accrual earnings andcash flow, and in accordance with the disclosure of the contents of our cash flow statement furthercontinue to decompose cash flow, by theoretical analysis to learn the persistent level ofdecomposition of the ingredients and the forecast role of future earnings. And I selected earningspersistence variables and argued the relationship between variables and the price-earnings ratio,which as the market reaction verification of earnings persistence. After, I used the content of China’sA-share listed companies in the2007-2011data for empirical analysis. The results showed that: theearnings of listed companies in China had a significant self-related level in the time series, whichproved existence of earnings persistence; whether I decomposed earnings as accounting earnings andnet cash flow or operating cash flow, the persistence of cash flow parts were higher than thepersistent level of accrued earnings; net cash flow and operating cash flow had their own persistenceand persistence of operating cash flow was stronger than persistent level of net cash flow and the accounting earnings; non-adjacent-period earnings persistence were generally weaker than the levelof adjacent-period earnings persistence, but contrast net cash flow; the further decomposition ofaccounting earnings and cash flow were able to enhance the forecast role of model; variable factorsof the earnings persistence were no significant correlation with the market reaction, investors werenot fully aware of the persistent feature of the earnings. Finally, by the empirical results, I putforward recommendations about analysis and evaluation of corporate earnings persistence. Trying tomake the results of this study bring investor practical help.