An Study On The Influence Of Firm Reputation On The Material Earnings Surprises Occur And Its Investors' Reactions

Ever since the new century, with the continuous development o f market economy in our country, China's capital market has been shaped, and it also plays an increasingly significant ro le in the nat ional econo my. However, the low efficiency o f capital running is st ill a problem, which influence the econo mic development in a negat ive way. The informat ion asymmetry would lead to material earnings surprises that harms the effect ive operat ion o f the market, and lead to the decrease o f the market liquidit y. As a market signal, firm reputat ion can so lve t he problem caused by the informat ion asymmetric. As a result, the study on the relat ionship between fir m reputat ion and material earnings surprises could help us have a better understanding on the importance o f firm reputation which can reduce the material earnings surprises caused by the information asymmetric. The research o f the relationship between fir m reputat ion and material earnings surprises could help to decrease the issues that informat ion asymmetric brings to the Chinese capital market, improv e the efficiency of the market and strengthen the development of econo my societ y.This paper mainly discusses the influence o f the firm reputat ion on the material earnings surprises occur and its investors' react ions under the Chinese market background. First ly, this art icle determines the paper's framework and methods through a review of the exist ing literature of firm reputat ion, earnings surprises and material earnings surprises. Secondly, this paper assume and analysis the relat ionship between firm reputat ion and material earnings surprises based on the Informat ion Asymmetry Theory, Reputat ion Theory, and Efficient Market Hypothesis. Thirdly, this paper selects the co mbined result of "China's Most Respected Enterprises", "China's Most Admired Co mpanies" and "China 50 Most Respected Co mpanies" between 2007 and 2013 as the sample o f high firm reputat ion, which is an innovat ive cho ice, and do the empirical study. We find that firms that have accumulated hig h levels o f reputat ion are less likely to occur material earnings surprises than firms without this asset. High-reputat ion firms experience greater market rewards for posit ive material earnings surprises. The results showed that firms reputat ion can play an inhibitory effect on material earnings surprises as a mean o f reducing the informat ion asymmetry, which can contribute to the effective funct ioning of capital markets, finally making our sustained econo mic and social development towards to a good direct ion. What's more, as a posit ive factor, firm reputat ion will increase the posit ive influence that posit ive material earnings surprises bring to the market, which benefit the firm itself. Based on these, this paper offered several suggest ions that focused on enhancing and applying the firm reputat ion mechani sm, improving the informat ion disclo sure system and strengthening the management o f analyst to contro l the material earnings surprises and the negat ive impact o f the capital market.