Empirical Analysis On The Relationship Between Product Maurket Competition And Earnings Quality

The quality of earnings information is the key factor that protects investors’ interests and that maintains the healthy development of capital markets, it has been attracting the attention of the accounting information users and the public. The favour of information on the company earning information is much higher than that of the other accounting information. Earnings information quality directly affect the value of the existence of accounting information, affect the investors, creditors, managers, regulators and other stakeholders’decision-making behavior, and affect the healthy, stable and sustainable of the development of the securities market. But accounting scandals, such as Enron, WorldCom, in the early21st Century draw the public’s attention to the earnings quality.Now, that the earnings information of listed companies in China is of low quality is an indisputable fact. Earnings management of these companies is a common phenomenon and brings adverse effects to the capital markets. Managers’ motives for disclosure are influenced by the firm’s economic determinants, institutional settings, as well as industry characteristics. Existing related research shows that the earnings information quality is not only affected by external environment factors, the influence of the institutional environment and the enterprise internal, also influenced by industry characteristics.Modern competition theory provides us a new perspective to study the effect on the earnings information quality.The objective of this thesis is to examine the impact of product market competition, as measured by industry concentration, on earnings quality. o be specific, it includes:(1) the impact of industry concentration on the quality of discretionary accruals;(2) the impact of industry concentration on the quality of earnings persistence.From theoretical discussion and empirical analysis, I find several consistent evidences:a negative relation exists between industry concentration and the quality of earnings information. These findings are consistent with the intuition that firms in concentrated industries tend to protect their competitive advantage and avoid public and political attention by choosing a disclosure policy that is of a lower quality.This thesis complements prior research which focuses mainly on the impact of product market competition on accounting information quality. It contributes to the literature, it provides more evidence on the relationship between competition and quality of discretionary accruals and earnings persistence.