A Study On The Market Reaction Of Income Smoothing

Income smoothing is a common phenomenon in capital market. With the maturity of China's capital market, income smoothing has gradually become the focus of people. Study of income smoothing can help us to correctly understand its role to the quality of accounting earnings information and the operational mechanism of China's capital market and investor behavior characteristics, and thus help to improve China's capital market effective allocation of resources and increase the maturity of the capital market.Currently, the debate to economic consequences of income smoothing is very intense. Some studies suggest that income smoothing can distort accounting information of the real business and enable investors to make the wrong market pricing; other studies is that income smoothing can improve the usefulness of accounting information and thus help investors make the right market pricing. As a result, the impact of income smoothing on the quality of accounting information has become a problem to be tested.This article aims to study whether income smooth has a impact to investors in the stock market. What is the impact? By continuously from 2007 to 2009 listed in Shanghai and empirical analysis of the company as a whole, the establishment of a multiple linear regression model, the coefficient between the model and compare the explanatory power of income smoothing and between accounting earnings information useful relations were studied.First, the market reaction of investors to earnings and its components under the current accounting income smoothing is positive, and it is reflected through the various components of earnings in market pricing. Second, investors only consider the income smoothing factors when they response to accounting earnings in the current market, while in the future the market r not considering the income smoothing factors. This shows that investors will not absorb more from the income smoothing of accounting earnings information on the future of stock prices. Third, the income smoothing will affect the company's stock price. Accruals is more important to investors than the cash flow from operating activities, so investors will give more consideration to the profit and surplus stock information in the investment decision-making, which gives a broad space to earnings management of listed companies.