| This paper increases research on the relationship between earnings and stock returns of the remaining domestic academia, by exploring the relationship between changes in residual income and stock returns. Although there are lots of researches on the relationship between capital investment and stock returns in domestic academic circles, but these researches are in the same area. This paper not only studies the relationship between stock returns and capital growth, but also analyzes the relative relationship between residual income’s impact on stock returns and capital investment’s impact on stock returns; deepens research development in this field.The paper conducts topics in the current market environment and the background of theory studies. It starts from the current research status, explaining the significance of this study. After expounding the theories, this paper reveales the derivation of applicable model. It uses Sudhakar Balachandran and Partha Mohanram(2012)’equation on the decomposition of changes in accounting earnings as the basic equation for the establishment of research model. Then it uses the accounting data, stock return data of the Shanghai Stock Exchange A share listed companies to do the empirical analysis, to indicate the related phenomena of China’s stock market.First, this paper reviews current study of residual income, capital investment and stock returns. Second, it deduces relative model and the variables. Last, it uses five years sample of the Shanghai Stock Exchange A share listed companies to explain the relationship of the variables.The results of this study show that there is a negative correlation between income growth and the current surplus stock returns, but there are also put a positive correlation between the increase of capital and income returns. But the market value for both understanding is different, more emphasis on invested capital market growth in the stock returns. In addition, for smaller companies, the market for its surplus revenue growth, greater investment in capital growth can explain the difference between the current stock returns. As for the recent high corporate profitability, the market gives them a residual income growth, investment growth in the value of capital can explain the current higher stock returns.Secondly, in a further study, we find that residual income can bring sustained growth accounting earnings growth; This increases brought by the invested capital accounting earnings growth showed a significant mean reversion resistance.Finally, this paper studies the residual income growth, the relationship between the rate of return on invested capital growth and corporate stock in the future. The results show that there is a positive correlation between residual income growth and future stock returns, it also shows that the market for the reaction of residual income growth of information exists drift accounting information;, but there is a negative correlation between Invested capital increased and future stock returns.This shows that the market reversed its initial value of invested capital increased to bring accounting earnings growth, realize overestimated its value, after the market realized that the future of the information, and make the appropriate response on the market, reducing the pursuit of corporate stock, which will reduce the rate of return the stock, and therefore showed strong mean reversion property. For smaller companies, the market for its surplus revenue growth, capital investment growth can explain the difference between the current stock returns are still the greatest. For smaller companies, the market for its surplus revenue growth, capital investment growth can explain the difference between the current stock returns are still the greatest. For the companies with the recent strong profitability, increase capital investment relationship with future stock returns are negatively correlated, suggesting that increased capital investment does not give equity investors bring added value. |
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