The Correlation Research Between Audit Committee And Earnings Persistence

The audit committee as an important institutional arrangement in corporategovernance, is playing an important role to perfect the corporate governance structure,strengthen the internal control and improve the quality of the company’s financialinformation. In2002China Securities Regulatory Commission and the former StateEconomic and Trade Commission issued the “corporate governance guidelines”,suggested listed companies to set up the audit committee. It marks the audit committeesystem formally established in our country, many listed company response to this policyand set up the audit committee one after another. With the establishment anddevelopment of the audit committee, the impact of listed company’s audit committee onthe quality of accounting earnings quality received high attention. Accounting earningspersistence as an important aspects of accounting earnings quality, becomes the focus ofattention. The absolute number of accounting earnings is not the only measure ofjudging accounting earnings quality, the accounting earnings can be manipulated tosome extent. So the earnings persistence is the core that investors use earnings forecastto make investment decision. And it is the key to companies sustainable development.We combine the audit committee with earnings persistence and further study theimpact of the audit committee on earnings persistence. We choose an unique view ofearnings persistence to measure accounting earnings quality, check whether thefunction of the audit committee is effective and whether the corporate governancestructure is perfect.Before the empirical research, we review the related literature at home and abroad,state the theoretical basis of the audit committee, and define the definition of earningspersistence. On thus basis, using the accounting earnings first-order autoregressivemodel as the basic model, then combines it with the audit committee establishment andinternal characteristics.In empirical study, we use samples of A-share listed companies during year2010to2012, the result shows:(1) The earnings persistence in Chinese capital market isobjective existence significantly, the cash flow component is more persistent than theaccrual component;(2) The establishment of audit committee can improve earningspersistence, and lead companies to more sustainable and steady development. What’s more, the influence to the accrual component is greater than the influence to the cashflow component.(3) With the different internal characteristics of audit committee, thescale shows negative correlation with earnings persistence, but not significant; Theindependence was significantly positively related to earnings persistence; professionaland diligent are positively related to earnings persistence, but not significantly.According to the empirical results, we make some related suggestions and point out thelimitations and future prospects.In summary, this paper examined the importance of the audit committee toearnings persistence, deepen the understanding of earnings persistence. It has animportant significance to guide the investors to make reasonable long-term investment,to assist government make policy, to promote the capital markets healthy and persistentdevelopment.