Capital Structure Of Listed Companies In China And Earnings Quality Empirical Research,

Capital structure and earnings quality are two issues of great significance of development of market economy and modern corporate governance, which have attracted a lot of attention from the theoretical circle. A rational capital structure is of great importance for improvement of corporate governance and enhancement of corporate value. Earnings information of high quality is basic for function of resource allocation of the capital market. An amount of literatures have studied the capital structure and earnings quality respectively. However, few of the existent literatures have focused on the relationship between capital structure and earnings quality. Accounting earnings contents information on corporate value, while financial leverage or default risk lead to reallocation of wealth between stockholders and creditors. Therefore, default risk and financial leverage will certainly impose effect on the equity value, thus affecting the response of stock price to accounting earnings,that is liability and value relativity of accounting earnings. Study of relationship between capital structure and earnings quality can give guidance on optimization of capital structure and constriction and supervision function of debt on contract, thus improving earnings quality. In this sense, the research can be meaningful both theoretically and practically.This paper first analysis the status quo and problems of capital structure and quality of accounting earnings of China's listed companies. In the context of China's current situation, irrational capital structure and lower-qualified earnings prevails in listed companies, this paper chooses the relationship between capital structure and earnings quality as theme. On basis of theoretical analysis and literature reviews, it puts out three hypothesizes and tries to establish an theoretical model between capital structure and earnings quality, test the relationship between default risk resulted from debt in capital structure and earnings quality empirically. Specifically, we use financial leverage as measurement of default risk, earnings management and earnings response coefficient as measurement of earnings quality, which respectively measures liability and value relativity of accounting earnings.The research sample is made of annual report data of listed companies from 1999-2008. We use data of ten years to establish a wide time window and make panel data. In respect to three hypotheses, we make three matched samples according to the scale and industry. We employ the modified DD model to calculate the earnings management. Earnings response coefficient is calculated based on relation between cumulated abnormal return and unexpected earnings. In the models, we put in indicate as ROA, Tobin Q and TOP1 etc as control variables to improve the explanatory power of the model. In empirical research part, we present the result of empirical analysis, including descriptive statistic, regression, and sensitivity analysis. It also makes explanation of the empirical result. The results of empirical test demonstrates that, there is a negative relation between financial leverage and earnings quality, that is, the higher ration of debt in capital structure, the lower of earnings quality. Specifically, the higher the ration of long debt, the lower is the quality of earnings.According to the empirical result, this paper provides suggestions from four aspects----optimization of capital structure, effect of capital structure, improvement of earnings quality and regulatory level. Despite of the limitation of this paper, it can be of significance on theoretical research and practice on capital structure and earnings quality.