R&D Investment, Financing Structure And Earnings Value Correlation

In China, the earning statement of the company is informative, and the stock market could react to the earning statement contained in financial statements. That means earnings are relevant to value. However, in China, the quality of earnings in listed company is not good enough and could have adverse impact on financial statement users. Therefore, we can study how to promote the earnings value relevance by identifying enterprise's signals, which come from production and business activities of the company, such as daily investment or capital raising. If it is a positive signal, we should have a further investigation to see whether the earnings value relevance is increased. This is the core of the thesis.Based on the literature of R&D investment, financing structure and earnings value relevance, this paper combines theoretical analysis and empirical test, and researches the influence of earnings value relevance from two aspects--the R&D investment and the financing structure. And based on the theories of the principal-agent theory, asymmetric information theory and signaling theory, this paper gives a theoretical explanation. On this basis, the empirical analysis use the manufacturing industry enterprises listed in Shanghai Stock Exchange and Shenzhen Stock Exchange from 2012 to 2014 as the study sample, respectively carries out descriptive statistics analysis, Person correlation analysis and multivariate regression analysis on the sample data. The results of the research reveal that:(1)R&D investment affects the value relevance of earnings. The value relevance of high R&D investment company earnings higher than which of the low R&D investment one.(2) Compared with external financing, the greater the proportion of internal financing, the higher the earnings value relevance. While compared to equity financing, the greater the proportion of debt financing, the lower the correlation of earnings value.(3)R&D expenditures on the earnings value relevance have positive correlation. The company with the greater the proportion of internal financing has stronger positive correlation of earnings value than which with the larger proportion of external financing. Moreover, the company with the bigger the proportion of debt financing has weaker positive earnings value relevance than which with the higher proportion of equity financing. According to the conclusion of the research, this paper gives the following policy recommendations. On the one hand, the government which is stood the aspect of should increase giving support to the innovative enterprises, help companies increase the initiative to research and development. On the other hand, supervision, looked from the perspective of, should require companies to strengthen R&D investment and sources of funds disclosure, and increase earnings value relevance. What's more, from the perspective of their own research and development, more and more enterprises need to arrange reasonably of the structure of capital, and to reduce business running risk.