Research On The Effect Of Earnings Management On Stock Price Informativeness

Stock price is the basic method to allocate resources efficiently,which is the key that securities market exercise its basic functions.Securities market guides the rational resources allocation by using the signalling mechanism of price,so that to maximize return on inverstment,and its efficiency is the crucial driving power of promoting the updating of industrial structure and the realization of the sustained and sound economy development.However,China’s securities market as an emerging one has a prevalent phenomenon of a long-run co-moving trend of stock prices,that the inefficient allocation of capital gives a stark contrast to the rapid economic growth and the quick development of stock market.For exerting the signalling fuction of stock prices effectively to directing reasonable capital collocation,it requires to examine the magnitude of firm-specific information which means stock price informativeness that stock prices carries and transmits.Stock price informativeness represents firm-level information which is the significant symbol of measuring market efficiency.Seeing from the microlevel,earnings information which the listed companies have disclosed is a major source of firm-level information.While with the separation of company’s ownership and management right and the asymmetry of information,earnings information become the private information of company.Based on different earnings management motivation,company can adjust or distort earning information by using earnings management in different ways to transmit the messagers about the economic income which influences investors’ decisions,thus affecting the information content of stock prices which informed by the investors’ trading action.Therefore,this paper gives a deep research on stock price informativeness effects of earnings management.Firstly,this paper summarizes the research situation at home an abroad of earnings management and stock price informativeness,and analyzes and profound research on their internal relationships based on the efficient market hypothesis and the behavioral financial theory.Taking the samples of 2334 listed companies of Shanghai and Shenzhen A-share markets from 2009 to 2014 and using Fama-French three-factor model to account the stock systematic risk as measuring stock price informativeness,to make the empirical tests of the relationship between accruals earnings management,real earnings management and stock price informativeness respectively.The study found that accruals earnings management is significant positively correlated with stock price informativeness which real earnings management is significant negatively correlated with.As can be seen,the influences of dfferent type of earnings management on stock price informativeness are different.Moreover,under the different direction or informed rading condition the degree of influence of earnings management to stock price informativeness will change.The main contribution of this paper is completely exploring the effect of earnings management on stock price informativeness.Not only analyzing the naturn of dfferent type of earnings management and its economic consequence,but also distinguishing the different influence path between accruals earnings management and real earnings management.This study provides empirical evidence and theoretical supports for the strengthening of accounting regulation and promoting allocation efficiency of capitals.