Reseach On The Value Relevance Of Chinese Listed Company’s Dirty Surplus Flows

Dirty surplus accounting flows are these accounting items violating the cleansurplus relationship (CSR) which the residual income valuation model relies partly on.They are those changes affecting the owner’s equity, according to CSR should berecorded in the income statement, but in accounting practice directly recorded in theowner’s equity in the balance sheet, corresponding to the listed companies in China inthe financial statements "the other comprehensive income". The research on dirtysurplus accounting flows plays an important role in further discussing the explanatorycapacity of Ohlson model, and how to enhance the correlation of accountinginformation, and provides necessary theoretical basis for the setting of accountingstandards.Based on the residual income valuation model (RIVM), this paper uses theempirical and simulation method in research for the value relevance of dirty surplusaccounting flows. This result of the study shows that omitting dirty surplusaccounting flow can cause the potential errors in economic value index EVC with theapplicability of non-parameter statistics, Therefore to be further discussed is theexplanatory power of dirty surplus accounting flows for the enterprise market value.The paper uses current research methods for reference, and establishes empiricalmodel based on the Ohlson model and dividend discount model, using the2009,2010annual reported data in shenzhen exchanges A shares listed company for empiricalresearch. Since current research method ignores that the sample in the short termcould produce adverse effects, and to eliminate this kind of influence, this paperdesigns a variety of simulation methods, gets the corresponding100years accountingdata in the hand-collected experience data in the simulated research for the aboveproblems. But the paper is based on either experience data or multiple simulation data,the results show that the dirty surplus accounting flows (other comprehensive income) have little explanatory power for the enterprise market value. To explore the littleexplanatory power of dirty surplus accounting flows, this paper researches the valuerelevance of clean surplus and dirty surplus accounting flows in the way of pricemodel. The results showed that the clean surplus (comprehensive income) has thevalue-relevance, but the value-relevance of comprehensive income is not strongerthan that of traditional income, and the results also pointed that not having thecharacteristics of sustainability is the basic cause of lower explaining ability to dirtysurplus accounting flows.The results of the study show that, despite the dirty surplus accounting flowshave little explanatory power for the enterprise market value, but in the currentaccounting practice, there is an important meaning of dividing comprehensive incomeinto net income and the other comprehensive income for improving the overallexplanatory ability of accounting information. At the same time, the significance ofthe results of the study of accounting standards is that non-persistent surpluses shallbe directly disclosed as other comprehensive income in the balance sheet, this is aimportant way to improve the value relevance of accounting information.