An Empirical Study On The Relation Among The Earnings Quality And The Cost Of Capital

Accounting income, which has high information content, is the manifestation that the listed company conducts the result in certain period, and it is also an important index sign that evaluates the executive accomplishment. So while the accounting information users make decision on the basis of accounting information, they often regard accounting income as primary information resources. With the continuous development of China's securities market, the concept of earnings quality gradually get understanding. A large number of research results make this concept is gradually known by people.The cost of capital is one of the key concepts of financial finance, and it is also the decision-making basis for the company managers, investors and the government. The company managers need to accurately estimate the cost of capital for financing and investment choices. Investors have to use the cost of capital for enterprise value appraisal, similarly, for the regulators, it is also very significant, because the market supervision process need to understand the use situation of the various capital in the capital market. With the continuously standard of China's securities market, improving the earnings quality whether help reduce the cost of capital, and in which extent? Does the enterprise should improve its earnings quality, in order to reduce the company's capital costs? These questions'research, on the one hand, can arouse enterprise's self-consciously consciousness to reduce earnings management behavior, and improve earnings quality .and it can improving the reliability and the information transparency of the securities marketOn the other hand, reduction the enterprise's capital cost can help the enterprise improve the enterprise value, and it is meaningful to protect investors interests and maintain the market just, optimize the capital market resource configuration. Theoretical analysis indicates that earnings quality affect the cost of capital mainly from the following aspects:(1) based on the information asymmetry theory: in the capital market, as investors can not obtain the complete information of the enterprise, it is impossible to make correct judgment for distinguishing the enterprise surplus's quality,so investors will face higher investment risks and will also require higher returns,therefore the cost of enterprise capital will be increased.(2) Affecting the cost of capital through affectting stock's liquidity. Investors earnings can realize smoothly only in the capital market which has high liquidity, The stock liquidity better, the transaction costs lower, and the investor expectations of reward lower,then the cost of capital lower. The company may reduce the cost of capital by improving earnings quality to enhance the liquidity of stock.(3) based on risk and reward balance principle:In the capital market ,Investors will require higher return if they face more risk and the risk faced by investors is closely related to the earnings quality, therefore, the enterprise surplus's quality has impact on the return required by investors. And the investor expectations of reward lower,the cost of capital lower.Based on this, this article, from defining the implication of the earnings quality, measure the different attributes of the earnings quality ,and estimate the cost of capital of the listed companies in China, test and verify the relation of the earnings quality and the debts capital costs, equity capital costs and comprehensive capital costs. The results show that the listed companies' earnings quality level in China and the enterprise debt capital costs, equity capital costs and comprehensive capital costs have a significant negative correlation. Enterprise surplus quality have obvious influence on the capital costThe empirical results exist three enlightenments:First of all, investors in the market should pay special attention to corporate earnings quality. Secondly,the company should improve enterprise surplus quality, then can reduce the cost of capital and get resources advantage to get enterprise sustainable development. At the end, the regulators should enlarge the market to regulate dynamics, strengthen investor protection, urging enterprises to continuously improve earnings quality to optimize the allocation of resources.Overall, this studies systematicly analysised related literature with regard to relationship of the earnings quality and the cost of capital, it may be a base of support for the further research .Meanwhile the paper deeply analyzed effect mechanism that the the earnings quality how to affect the capital cost, enriching the relevant research results.Finally, this paper empirically reveals the intrinsic relationship between the earnings quality of listed companies in China and the cost of capital, proved that the earnings quality have obvious influence on on the cost of debt capital. And analysised the enterprise surplus quality function difference between the cost of debt capital and the cost of equity capital, furtherly perfect the relevant research results.