The empirical study of investment opportunities in the value-relevance of accounting earnings

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. © 2012 Springer-Verlag GmbH.