The Correlation Research About Earnings Quality And Stock Price Synchronicity

Stock price synchronicity means that stock prices move in the same direction together, which implies that stock prices "the same up and down". And in the study of Jin and Myers (2006) which explore the stock markets of 40 countries, found that the co-movement of the stock price in China is the highest. An important reason is due to information asymmetry leading to the low quality of accounting information, especially the low earnings quality. Information users make investment decisions typically rely on earnings information, from an economic point of view, when the cost of collecting and analyzing information more than the benefits because of the information collected and generated, will produce "adverse selection" and "moral hazard". Thus firm-specific information is not fully capitalized into stock prices, which weakens the economic role of prices that serve as signals for investment decisions, and lead to highly correlated of stock prices. Against this background, this paper based on the earnings quality data of 395 listed companies in the small board from 2011 to 2013, empirical studies of the relationship between earnings quality and stock price synchronicity.Based on the literature reference, this paper from four aspects including profitability, growth, sustainability, protection of cash flows, using principal component analysis, to measure earnings quality.while using asset pricing model to obtain Rz on behalf of stock price synchronicity.In addition, this paper introduce institutional investors as the moderator, to explaining the correlation between earnings quality and stock price synchronicity more logic, it also has important practical significance to verify the effectiveness of securities market and guide the stock market investment decision. The study found that, the phenomenon of stock price synchronicity has relieved.The higher quality of earnings, the lower stock price synchronicity. Furthermore, the negative correlation between earnings quality and stock synchrony enhanced with the increase in the proportion of institutional investors.