The Correlation Study Between Earnings Persistence And Stock Price

With the development of capital market, relationship between earnings persistence and stock price has becomeone of the important issue to the investors. Our research focuses on the question whether price can be affected by the earnings persistence. The research theme of this dissertation examines the role of earnings persistence in the pricing of stock market. First, this artical introduce the recent academic literature on earnings persistence. Secondly, it estimates the cross-sectional variation in earnings persistence determined by economic factors, financial statement indicators and accounting policies. We apply the same method to measure the cash flows persistence and accrual earnings persistence as well. Then, we adopt pricing model to investigate the relationship between earnings persistence and stock price. Finally, in order to assess whether related transaction affect the coorelation between earnings persistence and stock price, we use related transaction as being a indicator to divided the whole samples into two groups, comparing difference of each group's earnings persistence role correlate with stock price.Our Statistics show that (1) earnings persistence has negative relation with stock price, (2) in contrast to accrual earnings persistence, cash flows persistence has more information content, cash flows persistence affects stock price greatly than accrual earnings persistence, (3) investors of capital market are rational in different situation. The effect of earnings persistence is asymmetrical, listed company who has more related transactions, its relationship between earnings persistence and price is more closely correlate than the listed company has less related transactions, (4) in the situation of the listed companies have taken place more related transaction deals, cash flow earnings has more explain power in stock price.