Research On The Earning Forecast Quality And Investment Efficiency

In the company,financial management activities include three sections, that are financing decision-making, investment decision-making and dividend distribution decision-making. However, investment decision-making is the priority, which to a great extent, decides the choice of the other two decisions, and plays a decisive role in the company's operation and development. But the managers' ability of earning forecast is the key factor to the success of the investment decision-making, as a consequence, the manager's ability of earning forecast plays an important role in choosing of company's investment decision-making evaluation method. Despite the company forecasting about the future development of company which is made by managers is a key component of company survival and development, most of its forecast can only be observable within a few managers in company, which is unobserved for most stakeholders or investors outside of company. Company's earnings forecast that is released to external by managers provides an external examine tool to measure the company's managers ability of earnings forecast because the earnings forecast not only provides the managerial and financial performance of company in the future, but also reveals the economic environment around with the company that the managers can control, and the managers' ability to predict industry future business prospects.Based on the managers' ability of earnings forecast quality for listed companies, this paper gives a detailed definition of the earnings forecast quality made by the company managers to release for the external, and the investment efficiency, as also measures the earnings forecast quality and investment efficiency. Combined with the important role of the forecasting quality in the earnings forecast and investment decisions, the paper gives some appropriate hypothesis and builds a theoretical model based on the descriptive statistics of the earnings forecast quality and investment efficiency, in order to further verify the managers earnings forecast quality how to affect the company's investment efficiency. Then this paper designs some proxies and variables of the earnings forecast quality and investment efficiency, and use the multiple regression analysis method to verify hypothesis. Based on using the investment efficiency of foreign mergers and acquisitions and investment efficiency of internal capital investment to measure the investment efficiency of listed companies, this research tests the correlation relationship between the earnings forecast quality made by company managers and the investment efficiency using the theoretical model, and give the conclusion with analyzing the empirical results. Finally, the paper sets relevant and reasonable countermeasures and suggestions according to the theoretical analysis and empirical research results.This paper includes five sections as follow:The first section is Introduction. As the starting point of this study, in this part, the paper introduced the research background of this article, research significance in theory and practice, the definition of the earnings forecast quality and investment efficiency. This section gives research design and the logic framework, which effectively set a theoretical foundation for the subsequent research.The second section is the rules and regulations of earnings forecast disclosure and literature review. Because of the complexity of the rules and regulations of earnings forecast disclosure of listed companies in our country, this part firstly introduces the rules and regulations of earnings forecast disclosure of listed companies in our country to complain the vicissitude course of earnings forecast disclosure, so that reveals the system background of the research in this paper. Secondly this paper makes a summary previous review and gives a literature review from three aspects about the earnings forecast quality, the investment efficiency and the earnings forecast quality effects on the investment efficiency of previous related research at home and abroad.The third section is the Theoretical basis and Research hypothesis. In the third section of this paper, we builds a theoretical model and the theoretical framework about the earnings forecast of company's managers, the earnings forecast quality and investment efficiency, based on internal and external mechanism between the investment efficiency of foreign mergers and acquisitions and investment efficiency of internal capital investment, as well as puts forward the hypothesis of this article:H1: The higher quality of management earnings forecasts released to the external, the investment efficiency of foreign mergers and acquisitions is higher. Namely the quality of earnings forecast is proportional to the merger and acquisition efficiency.H2: The higher quality of management earnings forecasts released to the external, the investment efficiency of internal capital investment expenditure is higher. Namely the quality of earnings forecast is proportional to the efficiency of capital investment expenditure.The fourth section is the Empirical Analysis of the earnings forecast quality and the investment efficiency. The paper in this section includes three major parts, that are sample selection and data sources, research design(setting and building proxies and variables) and theoretical model, the empirical result analysis, including descriptive statistics, correlation and the multi-collinearity testing, regression analysis).The fifth section is "policy advice". In this section, we give a summary of the research conclusions, and put forward relevant countermeasures and suggestions mainly aimed at the research conclusion.Based on the key points of the earnings forecast and the process of investment decision-making by company's managers, we build the theoretical framework of this study. We use the panel data from 2003 to 2012 of the A-share listed manufacturing industry companies to verify the hypothesis. The following conclusions are drawn:(1) The higher of the quality of earnings forecast made by the management to release to the external investors, the accumulated return of the capital market yielded via the mergers and acquisitions investment is higher. That is, the quality of earnings forecast is proportional to the cumulative return.(2) The quality of earnings forecast has negative correlation with total assets of its operating profit margin.(3) The higher of the quality of earnings forecast made by the management to release to the external investors, the investment efficiency of foreign mergers and acquisitions is higher. Namely the quality of earnings forecast is proportional to the merger and acquisition efficiency.