Corporate’s Earning Persistence And Bank Loan

Earning persistence is current earning become a permanent part of the surplus time series.If the current earning become more permanent part of the surplus time series, the earningpersistence is strong. Earning persistence metric method mainly include the linear first-orderautoregressive model, time series model, financial index analysis method. As the dependentvariable, the persistence of earning can not directly measured by the first-order autocorrelationmodel. For the time series model, the earning information requirements are relatively high.Chinese accounting standards changed quite frequently, the accounting information of thelongitudinal comparability is poor, therefore does not have the feasibility of using time seriesmodel. This paper adopts two methods to measure earning persistence.First, I divide the profitinto operating profit and other items. Operating profit is the proxy for permanent earning, theother items is the proxy for transitory earning. High permanent earning represents high earningpersistence, and high transitory earning is said great earning volatility and low surplus. Thesecond kind of method is the innovative use of the goodness of the autoregressive model, thegoodness of fit is higher then express enterprise historical earning information can make moreforecast of future earning, earning persistence. The results of the empirical research shows thatoperating profits and bank borrowing are positively related, and the other items and bank loanhave significantly negative correlation. The persistence of earning project validated that whenthe earning persistence is high, enterprise can obtain more loan from banks. Secondly, thefirst-order autocorrelation of goodness of fit also has positive relationship with bank loans, onceagain proved the hypothesis.