An Empirical Study On Earnings Persistence Of Listed Companies In China

Earnings are the foundation of enterprises'survival and development, it reflects enterprises'operating results with a certain period and protects investors, creditors and other stakeholders'interests. While earnings persistence is one of the most important indicators that reflect earnings quality, it is not only the significant basis for investors, creditors and other stakeholders to judge the enterprises'future development tendency but also the core of business valuation. Because of those reasons, research on earnings persistence has great practical and theoretical significance.This paper reviews research literature on earnings persistence of domestic and foreign scholars, by defining accruals, this paper decomposes the accrual according to the nature of enterprise activities and balance sheet, and rates each based on the reliability of respective accruals. We construct a linear regression model that combines accruals reliability and earnings persistence, then make an empirical research on earnings persistence of listed companies of manufacturing industry, investigate the relationship between earnings persistence and accruals reliability. The result shows that the accrual component of earnings is less persistent than the cash flow component of earnings; less reliable accruals leads to lower earnings persistence; the introduction of fair value measure leads to regression coefficient symbol change of financial assets, it reveals the substitute relationship between relevance and reliability. Based on the conclusions, by analyzing the manufacture process of accounting information, this paper makes the accounting reliability as the transmission media and presents some advises to improve earnings persistence of the listed companies in China. Finally, we sum up the inadequacies and propose issues for future study.