Abstract
The author focused on the investment opportunities of the company, using the Earnings response coefficient to test whether the investment opportunities have impacted in the value relevance of accounting earnings. Our sample includes all unregulated firms that only issue A shares on Shanghai stock market for at least three consecutive years between 2006 and 2008. The analysis is motivated by the growth information hypothesis and the noisy measure hypothesis, both of which are about how and why the value-relevance of earnings varies with investment opportunities. Through the establishment of return - income model, we analyze the investment opportunities of the accounting value-relevance effects. Test results found that the company’s investment opportunities on the value relevance of accounting earnings produced a negative effect, indicating that higher the investment opportunities are, lower the use degree of accounting earnings when investors evaluating the investment value are.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Ahmed, A.: Accounting earnings and future economic rents: an empirical analysis. Journal of Accounting and Economics 17(5), 377–400 (1994)
Beaver, W.H., Lambert, R., Morse, D.: The information content of security prices. Journal of Accounting and Economics 2(1), 3–28 (1980)
Collins, D.W., Kothari, S.P.: An analysis of inter-temporal and cross-sectional determinants of earnings response coefficients. Journal of Accounting and Economics 11(2/3), 143–181 (1989)
Easton, P.D., Zmijewski, M.E.: Cross-sectional variation in the stock market response to accounting earnings announcements. Journal of Accounting and Economics 11(2/3), 117–141 (1989)
Fama, E.F., French, K.R.: The cross-section of expected returns. The Journal of Finance 47(5), 427–465 (1992)
Kormendi, R., Lipe, R.: Earnings innovations, earnings persistence, and stock returns. The Journal of Business 60(3), 323–345 (1987)
Kumar, K.R., Krishnan, G.V.: The value-relevance of cash flows and accruals: the role of investment opportunities. The Accounting Review 83(4), 997–1040 (2008)
Lev, B., Zarowin, P.: Boundaries of financial reporting. Journal of Accounting Research 37(2), 353–358 (1999)
Pfeiffer, R.J., Elgers, P.T., Lo, M.H., Rees, L.L.: Additions evidence on the incremental information content of cash flows and accruals: the impact of errors in measuring market expectations. The Accounting Review 73(3), 373–385 (1998)
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2012 Springer-Verlag GmbH Berlin Heidelberg
About this paper
Cite this paper
Fu, Y., Guo, H., Wang, D., Zhang, W. (2012). The Empirical Study of Investment Opportunities in the Value-Relevance of Accounting Earnings. In: Xie, A., Huang, X. (eds) Advances in Computer Science and Education. Advances in Intelligent and Soft Computing, vol 140. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-27945-4_37
Download citation
DOI: https://doi.org/10.1007/978-3-642-27945-4_37
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-27944-7
Online ISBN: 978-3-642-27945-4
eBook Packages: EngineeringEngineering (R0)