Capital Structure And Earnings Value Relevance

Currently, the earnings quality of China's listed company is not high, and the capital structure is not perfect, so this paper considers earnings and capital structure as the focus of research and investigates the relationship between the two. On the basis of the results of previous studies, this paper argues that the value relevance of earnings is a measure of the most important indicator of earnings quality, and the financial leverage can measure the risk of default and quantified capital structure, so this paper builds a model between financial leverage and earnings, puts the earnings response coefficient as a tool to explore the relationship between the capital structure and the earning value relevance.The paper selects the samples in A-share manufacturing listed companies of the Shanghai exchanges from 2008 to 2010. And the samples are divided into three pairs: full equity and leverage, high leverage and low leverage, a high proportion of long-term and short-term leverage. At the same time, we make three matched samples according to the scale and industry. Besides, we add size, Tobin's Q, Beta as controlling variables. After giving the descriptive statistics, single factor test, and multiple linear regression analysis, we come to the conclusion that earnings value and financial leverage have negative correlation, that is, comparing to the company with financial leverage, the company with no financial leverage have larger Earnings Response Coefficient(ERC); the higher ration of debt in capital structure, the lower of earning quality; In addition, the higher the proportion of long debt, the lower is the quality of earnings. Based on the conclusions of the study, this paper makes some recommendations on the optimization of capital structure, improving market supervision and other aspects. Finally, the paper pointed out the possibility of the innovation and the improvement suggestion in the future research.