| Summary: | 碩士 === 國立成功大學 === 會計學系碩博士班 === 94 === Earnings is one of the most important financial information. While the information content and value-relevance of accounting earnings are widely recognized, this paper wants to explore whether investors put as much emphasis on “quality” of earnings as they put on the amount of earnings.
This paper refers to the method mentioned in Francis et al.(2004、2005) to carry out a research in Taiwan capital market. We examine the relation between the cost of capital and seven attributes of earning.
We characterize cost of capital as cost of equity and cost of debt. However, we characterize accrual quality, persistence, predictability, smoothness as accounting -based because they are typically measured using accounting information only.And we characterize value relevance, timeliness, and conservatism as market-based because proxies for these constructs are typically based on relations between market data and accounting data.
Besides, prior research which gererally considered earnings attributes one at a time.Our foucs is that consider all seven earnings attributes jointly and control for risk factors and innate determinants (firm size, cash flow and sales volatility, incidence of loss, operating cycle, intangibles use/intensity, and capital intensity).
Based on theoretical models predicting a positive association between information quality and cost of capital, we test for and find that the higher costs of capital born by firms with the least favorable values of each attribute reflect the higher information risk facing their shareholders and debtors. The relation between earnings attributes and costs of capital suggests that the market does take the information of earnings attributes revealed by the financial statements into consideration.
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