The Effect Of Earnings Quality On Market Risk And Its Market Pricing Research Of The Listed Companies In China

Accounting information is the basis of the allocation of funds, and it plays animportant role in the financial market. Earnings is the most comprehensive and themost important information that investors are concerned about. Earnings quality is atypical representative of the accounting information quality. In the study of ourcountry, scholars often use earnings quality as an alternative variable of accountinginformation quality and judge the accounting information quality by evaluatingearnings information quality. The research about earnings quality has always been thehotspot in the theoretical and practical circles. This article has performed a thoroughand comprehensive discussion and analysis of the relationship between earningsquality and the secondary market risk and pricing of the stock market from thetheoretical and empirical research. The specific content including:First, Literature review about earnings quality research. Through reviewing andsorting out related literatures about earnings quality systematically, this partsummarized the at home and abroad research from three aspects: the definition andmeasurement of earnings quality, the relationship between earnings quality and thesecondary market risk, earnings quality and the pricing of the stock market. Then iteduces the focus the paper wants to study.Second, using price impact as the proxy variable of information asymmetry,earnings precision, accruals quality and earnings smoothness as proxies for earningsquality, this part examines the relationship between earnings quality and informationasymmetry with panel regression method, based on the sample of A-share listedcompanies in Shanghai and Shenzhen Stock Exchanges. The result shows that poorearnings quality is associated with higher information asymmetry. Then, based on thesize of the company, this part constructs an information environment dummy variableto analyse the effect of earnings quality on information asymmetry in differentinformation environment. The research finds that the effect of earnings quality oninformation asymmetry is affected by information environment, and the negativeassociation between earnings quality and information asymmetry is stronger for firmswith poor information asymmetry.Third, this paper uses the sensitivity of stock returns to unexpected changes in market liquidity as proxy variable of liquidity risk, and chooses earnings precision,accruals quality and earnings smoothness as proxies for information quality, examinesthe relationship between information quality and liquidity risk, based on the sample ofA-share listed companies in Shanghai and Shenzhen Stock Exchanges. The resultshows that higher information quality is associated with lower liquidity risk and thenegative association between information quality and liquidity risk is stronger intimes of large shocks to market liquidity.Fourth, through building the earnings quality factor EQfactor, this paperintroduces the earnings quality factor as a pricing factor into the capital asset pricingmodel CAPM), Fama-French three-factor model, four-factor model and five-factormodel with liquidity factor to study the effect of earnings quality on stock excessreturn. The result shows that earnings quality and excess return is significantlycorrelative and earnings quality is an important asset pricing factor.