Research On The Correlation Of A-share Listed Company’s Stock Price And Accounting Information

Using the residual income model, we investigate the value relevance of accounting information of the companies listed in the Shanghai stock market from2003to2012. To find out the differences between different industries and years, we examine the value relevance of residual income and net assets from the view of the total sample, the year and the industry. The residual income model was also expanded to investigate the effects of scale, negotiable share ratio and financial leverage on stock prices. The research shows:First, the accounting information has significant value relevance in China’s securities market. Residual income and net assets have positive and significant value relevance. Compared with net assets, residual income has greater incremental value relevance.Second, there is an obvious stage characteristic in the value relevance of accounting information. Through examining the value relevance of residual income and net assets by year, we found that the residual income is more sensitive response to market conditions. In a bull market, there is a lower correlation between the residual income and stock price. It means that the stock market has already priced out of the company’s intrinsic value.Third, the value relevance of accounting information is also affected by changes in accounting standards. Fair value has been introduced in the new accounting standards which launched in2006and implemented in2007. It is an important reason for the dramatic increase of the value relevance of accounting information in2007. It also caused the leap across phase of the incremental explanatory power of residual income. As a result, the residual income becomes the most important factor affecting stock price.Fourth, residual income, net assets, scale, negotiable share ratio and financial leverage have significant value relevance and mutual incremental explanatory power. Scale and negotiable share ratio have significantly negative effects on stock price, but the financial leverage is regarded as a favorable factor.Fifth, we compare the difference of the value relevance between real estate, wholesale and retail trade industry and IT industry, we found that wholesale and retail trade industry has the highest explanatory of the value relevance, IT industry follows, real estate is the lowest. This paper argues that it ascribes to the life cycle stage of the industries, industry characteristics inherent and external policy environment. This also explains the residual income model can effectively convey the true nature of these industries, which proves that the residual income model is suitable in our stock market.