The Effect Of Smoothing Earnings Of Listed Companies On The Stock’s Excess Return

In order to maximize their own profit, the listed companies usually alter their profits artificially through a variety of accounting estimates methods, changing the accounting policies and the actual management activities to take the edge off the volatility of earnings. This behavior is called Smoothing Income. With the continuous development of the securities market, the smoothing income has been an important means of earnings management to the listed companies, which have also been very common behaviors to the listed companies in our country. The smoothing income of the listed companies could demonstrate to the shareholders and potential investors that the companies under good management and steady growth, which could make them get smaller risk assessment and become more favorable to the shareholders and potential investors. At the same time, it also make the companies have more chance to reduce the cost of equity financing, promote the cost advantage of the listed companies, enhance the value of listed companies. Meanwhile, the listed company proceeding smoothing income, could maintain their contractual relationship, reduce the cost of default, obtain a more favorable lease conditions, and increase their corporate value. Thus, smoothing income could make the listed companies have positive effect on the market and listed companies have the motivation to proceed the smoothing income.Aiming at the market response for the smoothing income, we purposed to further study the correlation between smoothing income and the excess return of shares of listed companies, prove that the smoothing income is beneficial to the listed companies to get higher excess returns, and deeply quantify the degree of influence of the smoothing income to the excess return on stocks. Propose reasonable suggestions to the relevant regulatory authorities and securities investors, for smoothing earnings of listed companies.This paper is divided into five parts:the first part is the introduction, which includes the research background, significance, research methods, research content, and research framework. The second part is the literature review. In this part, the existing research results at home and abroad have been summarized and classified. The third part includes constructing the empirical research model to prove the relationship between the smoothing income and the excess return on stocks of the listed companies. In the fourth part, the empirical results were obtained through Excel, SPSS19.0software proceeding the data sample, and the elaborate analysis of the results was given based on the computation. In the last part, rationalization proposal have been proposed to the investors and the relevant securities market regulators according to our research.