Research On The Relationship Between Earnings Quality And Capital Cost

Surplus is the operating result formed by the enterprise in a certain period..It is a very important index for the government management department, the investors, creditors and other stakeholders. Due to its high information content,users of accounting information often regard surplus as the most basic information resources in making some relevant decisions. With the development of the securities market in China, the concept of earnings quality is gradually understood. It is crucial for capital market to do the effective operation and allocation. In the capital market of China, it is also the important judgment index for the treatment of the share issuance, listing, allotment and delisting. To Lots of valuation model, accounting surplus is also important input parameters. Capital cost is one of the core concepts of corporate financial wealth, and it is the basis for the parties to make decisions on capital market. The capital cost is the foundation of the enterprise investment and financing decisions. To reduce the cost of capital not only contributes the development of listed companies, but also helps the resource of capital market configurate effectively. Therefore, for company managers, they need to accurately estimate the cost of capital in financing and investment decisions; for Investors, they need to use the cost of capital to make the enterprise value assessment; and for regulators, the cost of capital is also of great significance. Therefore, it is a hot problem to study how to analyze and evaluate the earnings quality and its capital market consequences in theory and practice. Based on the predecessors’ research, this paper tried constructing earnings quality evaluation model, and studying the relation between capital cost and earnings quality from the characteristics of earning quality.The content of this paper mainly includes three parts. Firstly, reviewing the related literature at home and abroad, systematically introduced the surplus quality evaluation theory, capital cost theory and the relationship between earnings quality and the cost of capital theory; Secondly, from the characteristics of earning quality, respectively sought out the financial index which indicates surplus sustainability, safety and growth, determined the index weight using factor analysis method, built a quality assessment indicators. Finally, the present author selected the pharmaceutical manufacturing listed companies in2009-2011as a sample, calculated the surplus quality. Based on the earnings quality, the present author studied relationship between earnings quality and the cost of capital, which is a focus in the study of this paper.This paper mainly adopted the method of normative research to introduce earnings quality evaluation theory, capital cost theory and the theory of relationship between earnings quality and the cost of capital. The empirical part mainly used SPASS16.0statistical analysis software. First of all, the present author studied the characteristics of variables with descriptive statistical analysis, Then adopted correlation analysis methods to analyze the relationship among the variables; at last, curve analysis method was used to construct multivariate linear regression model, test the relationship between earnings quality and the cost of capital. The research results showed that the sample company’s surplus quality level had a steady upward trend during those three years. The final results showed that there was a negative correlation between the earnings quality and the cost of capital for three year, but their relationship is not significant. Based on the results of the study, this paper finally put forward opinions and suggestions from several aspects, such as capital market investors and regulators.