Evaluation Of Earnings Quality Of The Listed Companies Basing On DD Model

As public information, earnings are the index that can be acquired more easily but the quality of earnings can be influenced seriously by management behavior and accounting system etc. Although earnings management behavior is the most concerned influence factor of earnings quality, as a more broad concept, other factors will also reduce the level of earnings quality.By analyzing accounting system, what is the foundation stone of earnings quality problem, and the basic influence factors of earnings quality, we choose to Dechow & Dichev model (hereinafter referred to as DD model) that capture intrinsic correlations between the cash flow and accruals to assess earnings quality. At the same time, taking into account the specificity of the domestic financial data, we select appropriate indicators of measurement models, respectively cash flow from operating activities, working capital accruals. Considering my samples' characteristics, the paper adopts three kinds of regression methods: pooled regression, fixed effect model and random effect model. u_i F test proves that the fixed effect model is superior to pooled regression;LM test proves the random effect model is superior to the fixed effect model. According to the theory basis of DD, we confirm proxy variables of earnings quality of random effects model, which is suitable for evaluating earnings quality, and finally tested 493 sample companies' earning quality.Despite the positive findings through the general test, but compared to the Dechow & Dichev test results show higher explain power in Chinese listed companies, on the conditions of our country, this model is more suitable for evaluating earnings quality, But stochastic model test results indicate my earnings management frequent and serious.