The Affect Of Earnings Quality On Firm Value: An Empirical Study

In the current market, competition among enterprises is becoming more andmore intense. The market value increasingly becomes the forms and objective offirm value. To evade taxes, absorb investment, and improve corporate reputation,they may conduct earnings management, which will possibly affect corporateearnings, in turn, the value of the enterprise. This article is mainly to study how thequality of corporate earnings affects the firm value and what will be the result of theeffect.On the basis of efficient market hypothesis and theory of asymmetryinformation, the relation between earnings quality and firm value is clearlyunderstood. I choose the earnings quality evaluation based on the following fourproperties of earnings quality: accrual quality, earnings persistence, earningspredictability, earnings smoothness. And I take Tobin’s Q to measure firm value inview of the characteristics of Chinese enterprises and the market economy. Basedon the theoretical analysis, the article comes up with a hypothetical relationshipbetween earnings quality and corporate value, and establishes the impact model ofearnings quality on corporate value. Based on the data collected from416listedcompanies of manufacture industry, data analysis is conducted and a specificationof regression is got by SPSS arises. In terms of economic reasoning, statisticalsignificance and econometrics test, I modify the model and get the final regressionmodel, with Tobin’s Q as the dependent variable, accrual quality, earningspersistence, earnings predictability, earnings smoothness as the independentvariables, and quick ratio, equity multiplier, the proportion of shares equity whichthe top ten shareholders owns, return on assets as the control variables.The result demonstrates that accrual quality and predictability are positivelyrelated to firm value while earnings smoothness is negatively related to firm value,which shows that different properties have different influence on firm value. All inall, earnings quality has a positive impact on corporate value, so it’s a good way toincrease corporate value by improving earnings quality.