The Research On The Impact Of Earnings Quality On The Investment Decisions

In the capital market, the main participate is investor, of which investment object isenterprise, so the quality of enterprises directly affects the efficiency of resource allocationof the capital market. As we all know, earnings information can reflect the performance ofthe enterprise, if there is no manipulation, this information will be able to guide the capitaltransfers to enterprises with high quality, and the purpose of optimizing the resourcesconfiguration can be achieved. However, external investors can not insight into the qualityof surplus accurately due to the presence of asymmetric information in markets; they makea variety of judgment merely by virtue of the data in the financial report which may easilyresult in adverse selection and moral hazard. At the same time, low-quality surplus woulddisrupt the efficient allocation of resources, thus, it is very important for users ofaccounting information, especially for investors to carry out the study of the earningsqualityTo make the choice and decision of investments, the investors mainly through thefinancial statements of the investment target, especially through the earnings informationof the enterprises to evaluate their ability and level, then decide whether to invest andwhich type of investment to choose. Investment object will recognize its financialstatements and other information, which may looks more attractive, in order to meet theneeds of financing and capital requirements of the investors. If the investors can identifythe difference between earnings quality of different investment objects, thus to make acorrect and efficient investment decisions, they can obtain a large and lasting return oninvestment and reduce the risk of the investment assets, otherwise a wrong decision willlead them incalculable and irreparable loss.This paper has summarized many researchers’ studies on earnings quality, and takenthe correlation between different definition of earnings quality and investment intoconsideration, then selects the persistence of earnings quality, profitability of earningsquality, and earnings management as research perspectives to study on decision-makingbehavior of investors. In order to study the influence of earnings quality to disturb investors’ investment decisions, and to judge if the investors can identify the investmentobject in decision-making, this paper has collected the financial statements data of a listedcompany in three years from2008to2010. The following conclusions can be drawn: First,whether it is from perspective of the earnings persistence, or earnings profitability, orearnings management, there is correlation between each of them and equity investmentdecisions as well as debt investment decisions. In addition, there are some earningsqualities differences between equity and debt investments and the equity investments aremore sensitive to the debt investments.