Research On The Relationship Between Diversification And Earnings Quality Of The Real Estate Companies

In recent years, the national deep reform on land, taxation and financial havetremendous impact on the living environment of the real estate enterprises. Facing therapidly changing industry environment and the increasingly fierce market competition,many real estate companies began to make strategic adjustments to seek opportunitiesoutside the industry and embarked on a diversification path. As the main driving forceof the national economy, the diversification behavior of real estate companies caneither promote or damage the business profitability and what is the impact on theoperational and development of enterprises are worth exploring.This paper selects the2008to2012China’s real estate listed companies as theresearch sample. Based on the real estate industry features and characteristics of realestate companies, this paper builds earnings quality comprehensive evaluation modeltailored to the real estate listed companies through four aspects, including debtrepayment capacity, core profitability, the ability to obtain cash and sustainablegrowth and uses Factor Analysis Method to calculate the results. On this basis,thispaper further explores the relationship between the real estate companies’diversification and the quality of earnings The empirical results show that thediversification of real estate listed companies significantly damages the companies’earnings quality and core profitability which expresses as discounted effect and yetthere is no evidence of a turning point between the diversification and earningsquality of the real estate listed companies. In addition, the companies’ diversificationhas no significant positive correlation with debt repayment capacity and sustainablegrowth which indicates that despite the overall diversification of real estate listedcompanies is discounted, it also has a positive effect to the company.Therefore, the real estate companies should strengthen the input of weak abilitybased on industry ranking,based on the core business to choose the rightdiversification strategy,build enterprise resource efficiency tracking system,optimizethe equity structure and strengthen the effect of board governance so as to improve theearnings quality and industrial competitiveness of the company.