Research on the usefulness of accounting earnings information and its determinants

Author: Shi Kunxiang
Publisher:
Publish Date: 2005-05-01
Features: The core content of this book mainly includes two parts: one is to verify the usefulness of accounting earnings information for investor decision-making in the emerging Chinese securities market; the other is to identify and test the determinants of the usefulness of accounting earnings information. Overall, this book belongs to the field of empirical accounting research. The design of specific research methods is subordinate to the research objectives. Unlike other empirical literature, this book combines with normative research methods while following the general procedures of empirical research, utilizing the rigorous logical reasoning advantages of normative research to compensate for the shortcomings of empirical research. On the other hand, event study methodology is widely used in existing accounting research on the Chinese securities market, while this book adopts the long-time window dimension of the related study method to examine the relationship between accounting earnings and stock returns. To ensure the logical rigor and testability of theoretical reasoning, we need to elaborate on the research hypothesis conditions. This book has three hypothesis conditions: accounting objectives, weak-form efficient market, and capital asset pricing model. Under the "decision-usefulness" accounting objective, the accounting objective established in this book is narrow, namely "investor decision-usefulness," which is the theoretical hypothesis condition of this book. Based on a review of relevant literature, this book forms its empirical hypothesis conditions: the weak-form efficiency characteristics of the Chinese securities market and the applicability of the cAPM model in the Chinese securities market. In , we compare and analyze the importance of cash flow information and accounting earnings information in investor decision-making, and the empirical results support the conclusion that accounting earnings information has greater "information" content. Next, we separately test the relative importance of four levels of earnings items, namely gross profit from main business, operating profit, total profit, and net profit, in investor decision-making. The empirical results indicate that earnings information at all levels is statistically significant. Meanwhile, operating profit shows outstanding performance in the significance test, and the examination of accounting earnings information using the long-time window of the related study method should select the operating profit figure. The second part, this book first explores the determinants of the usefulness of accounting earnings information using a normative research paradigm, forming the main viewpoint that: information quality is the internal determinant of the usefulness of accounting earnings information; systematic information is the external determinant of the usefulness of accounting earnings information. Second, starting from the basic company valuation model, we derive and elaborate the theoretical formula for the earnings response coefficient, and from it determine three influencing factors that cause cross-sectional differences in the earnings response coefficient, namely systematic risk, earnings persistence, and company growth. The results of the theoretical formula deduction confirm the viewpoint of normative reasoning. Again, combined with an analysis of the institutional background of the emerging Chinese securities market, this book forms specific testable hypotheses. Additionally, to address the issues of "variable error" and "omitted variables" in the return-earnings model, we adopt the method of extending the return calculation time window and reverse regression to improve the concurrent model, and fully consider the actual situation of the Chinese securities market in the selection and measurement of alternative variables. The empirical research results show that high systematic risk in the Chinese securities market significantly affects the usefulness of accounting earnings information. At the same time, the quality of listed companies and the problem of distorted accounting information severely affect the usefulness of accounting earnings information. Finally, this book theoretically elaborates on three explanatory hypotheses for the difference between the theoretical value and the empirical value of the earnings response coefficient, namely the hypothesis of an inefficient capital market, the hypothesis of "noise" and "imperfect" accounting standards, and the hypothesis of temporary earnings. The research findings of this book will have positive significance both academically and practically. Academically, the main contribution of this book is to use the related study method to examine the usefulness of accounting earnings information and empirically select operating profit as the specific earnings indicator for testing. It constructs the determinants of the usefulness of earnings information and the three factors of systematic risk, earnings persistence, and company growth will serve as control variables for future related empirical research models. Practically, the research on the relevance of high systematic risk and distorted accounting information in the Chinese securities market to the usefulness of earnings information provides theoretical and empirical support for standard-setting institutions and company operators to strengthen market supervision and improve the quality of accounting information.