Is accounting information value-relevant in the emerging Chinese stock market?
Journal of International Accounting, Auditing and Taxation
Chinese accounting, Chinese stock market, Value-relevance
This study examines empirically whether domestic investors in the Chinese stock market perceive accounting information based on Chinese GAAP to be value-relevant. The study is motivated by the market-based value-relevance literature in the U.S. and by the recent developments of accounting and stock markets in China. Using a sample of all listed firms in the Shanghai and Shenzhen Stock Exchanges from 1991 to 1998 with available data, we obtain evidence of value-relevance in China based on a return and a price model. Specifically, we address three research questions. First, we document that accounting information is value-relevant in the Chinese market according to both the pooled cross-section and time-series regressions or the year-by-year regressions. Second, we further examine whether value-relevance in China changes in a predictable manner with respect to four factors including positive vs. negative earnings, firm size, earnings persistence, and liquidity of stock. Third, this study examines two competing explanations about the value-relevance of accounting information between A-share and AB-share companies and finds that investors place more weight on accounting information in A-share companies. Collectively, in this study, we report evidence consistent with the notion that accounting information is value-relevant to investors in the Chinese market despite the young age of the market and the perception of inadequate accounting and financial reporting in China.
Financial support from the Lingnan University.
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