Asset Replacement Of Yunnan Coal&Energy’s Market Reaction And Its Influence On Earnings Quality

The coking industry is our country’s basic energy and raw material industry,which has supported the rapid development of the national economy for more than 70 years.However,our country’s coking industry has continued to suffer from internal and external troubles in recent years,coupled with more stringent policies,its development has been challenged,and transformation and upgrading are the general trend.At the same time,the equipment manufacturing industry has a prominent strategic position in the world and a strong momentum of development,and has become a new growth point of the national economy,the ’14th Five-Year Plan’ proposes a plan to accelerate the growth of high-end equipment manufacturing and build a growth engine for strategic emerging industries.So the transformation is an excellent choice for traditional energy companies.In 2016,as a representative of the traditional energy industry,Yunnan Coal& Energy entered the equipment manufacturing industry by asset replacement.It was an exploratory move by traditional energy companies to seek business transformation and the industrial structure adjustment,which aroused heated discussions in the capital market.This article conducts a case study on the asset replacement of Yunnan Coal &Energy,analyzes the essential motivation of its asset replacement and the economic consequences of its asset replacement from the perspective of capital market reaction and corporate earnings quality.The answers can provide a meaningful reference for improving the asset replacement behavior and the earnings quality of the listed companies.This paper first explains the background and significance of the research,summarizes and combs the existing research literature and related theoretical basis of asset replacement,and analyzes the correlation between asset replacement and earnings quality.Secondly,this article analyzes the industry background and basic situation of Yunnan Coal & Energy’s assets replacement,introduces the asset replacement plan and process,systematically analyzes the motivation for the assets replacement of Yunnan Coal & Energy from the perspectives of external and internal factors,and considers the national policy promoting,protecting the qualification of listed company,obtaining short-term economic benefits,advancing the business transformation strategy,obtaining corporate synergy,and enhancing core competitiveness are the essential motivations.Next,this article uses the ’CAR method’ in the event research method to analyze the reaction of Yunnan Coal & Energy’s asset replacement event in the capital market,and further selects the same industry as Yunnan Coal & Energy with similar asset scales,similar business scope and utilizing asset replacement in the same year.Use the same method to examine the market reaction to the asset replacement of the comparable company,and comprehensively examine the impact of the Yunnan Coal & Energy’s asset replacement event on its market value combined with horizontal comparison.The study found that in a short period after Yunnan Coal & Energy’s asset replacement,the AR and the CAR always fluctuated at the zero level.The CAR increased near the event day,but the CAR is not obvious compared with the comparison company.Therefore,although investors have a certain positive response to the asset replacement behavior of the company,the response is insufficient.Investors are not expected that the company would achieve good future development through asset replacement.Then,based on the research of Li Jianhong(2010),combined with the business characteristics of the company,This paper designs a profit quality evaluation index system that meets the energy company’s earnings quality from four dimensions: earnings safety,profitability,sustainability and growth,and uses coefficient of variation method to weight the index to get the comprehensive evaluation score,then examines the changes in the earnings quality scores before and after the asset replacement of the company.Further,select a company with similar asset scale,similar business scope,but no asset replacement behavior from 2013 to 2019,and select a company in the same industry with similar asset scale,similar business scope and have utilized asset replacement from 2013 to 2019.Use the same method to obtain the comprehensive evaluation scores of the above-mentioned two companies’ earnings quality from 2013 to 2019,and horizontally compare this three energy companies’ changes in earnings quality.This will provide an in-depth analysis of the impact of Yunnan Coal & Energy’s asset replacement on earnings quality.The research found that: Yunnan Coal & Energy has improved asset liquidity through asset replacement,enhanced inventory liquidity,diversified operating risks,and improved its earnings security;at the same time,Yunnan Coal & Energy has improved its business benefits through asset replacement,reduced dependence on shareholders,improved asset quality,and promoted the development of its earnings growth.It needs to be pointed out that the asset replacement event has brought a lot of government subsidies in the short term,which has increased the proportion of non-recurring gains and losses.Non-recurring gains and losses have nothing to do with the main business and are unsustainable,which has reduced its earnings sustainability to a certain extent.However,in the long run,asset replacement can increase operating cash inflows,stabilize profitability,and improve its earnings sustainability by injecting high-quality assets.Although Yunnan Coal & Energy stabilized net profit,increased cash inflow from operating activities,and improved its earnings profitability to a certain extent,the proportion of new business is still small.Due to the adverse effects of the deterioration of the original business,the earnings profitability of the company has not been significantly improved.Compared with the Blue flame holding company which has carried out asset replacement in the same period,the trend of earnings security,sustainability and growth scores of Yunnan Coal & Energy and Blue Flame Holdings are basically the same.Due to the thorough transformation of Blue flame holding,the improvement of earnings profitability is more obvious than that of Yunnan Coal &Energy.Compared with Baotailong,which did not utilize asset replacement in the same period,the earnings security and growth of Yunnan Coal & Energy achieved a good development after asset replacement,and the earnings sustainability achieved a good development after the second year of the asset replacement,while the earnings sustainability of Baotailong gradually deteriorated,and the development of its earnings security and growth also lagged behind that of Yunnan Coal & Energy.Although asset replacement failed to fundamentally improve the profitability of Yunnan Coal & Energy,Baotailong’s deterioration trend of earnings profitability is more obvious.In response to the research conclusions,this article draws four enlightenments:(1)Enterprises should pay attention to the injection of high-quality assets when utilizing asset replacement;(2)Enterprises need to improve asset replacement plans to utilize asset replacement;(3)After asset replacement,Enterprises should focus on promoting resource integration;(4)Enhance the transparency of information disclosure related to asset replacement and maintain the healthy development of the stock market.