The Research Of Financial Quality And Stock Returns

After development over 20 years,Chinese stock market is becoming much larger in scale and mature in the rules.The stock market plays an important role in optimizing the allocation of resources and promoting the economic development.However,the investors lack in reasonable investment philosophy.They overlook the function of financial information of listed company in value evaluation.As a result,the investors can't make the right investment decisions.Therefore,to strengthen the understanding of the accounting information can help investors improve investment concept and improve investment returns.Financial quality means the evaluation of the financial position and operating results of listed company based on the accounting information.It is significant to explore the relevance between financial quality and stock returns in making scientific investment decisions for investors,improving management for listed companies and improving the securities market system for securities regulatory department.A large number of scholars have studied the financial quality.These researches are mainly conducted from the components of financial quality,evaluation method and evaluation system.This paper reviews literatures of earnings quality and asset quality which are parts of financial quality and literatures of evaluation methods and evaluation system of the financial quality at first.And then,I try to explore the relevance between financial quality and stock returns based on the previous study and the theories of Decision Usefulness,Information Perspective and Measurement Perspective.Specifically,this paper constructs the evaluation system of financial quality from asset quality,capital structure quality and earnings quality,and then calculates the score of quality by summarizing the financial indexes standardized by Z-Score method.Finally,an empirical model is built to research the relevance between financial quality and stock returns,which consists of dependent variable including excess earnings of stock,independent variables including asset quality,capital structure quality and earnings quality,and six controlling variables including enterprise scale,book-to-market ratio,P/E ratio,Beta coefficient,the negotiable share ratio and annual dummy variable.On the basis of the above model and the financial information from A-share listed companies from 2012 to 2013,the empirical research finds out that,the quality of asset,the capital structure and earnings have significant positive correlation with stock returns.So,we conclude that the financial quality has significant influence on the stock returns.On the end,this paper tries to propose suggestions for investors,listed companies and securities regulatory department.