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5 Empirical results

Table 3 shows coefficient estimates for the simple linear equation which is relating Pit / Bit-1 to Eit / Bit-1 (Eq. [1]). Results are exhibited for regressions which are conducted for semi-annual period from 2001 to 2008. As indicated in Table 3, the coefficient on earnings is positively significant for all years under study. This suggests that, in China, earnings are important in terms of information content and associated with stock price significantly.

In addition to that, as can be observed in Table 3, t1 (the t-statistic for β1) is rises across the years, that is to say, when it is moved to more recent years, the value of the coefficient increases. The estimates, however, show a wide fluctuation over the sample period. An explanation is that the change can be attributed to a general increase in the importance of earnings over the years in Chinese economic environment.

Table 3

Market value of Chinese companies as function of earnings between 2001-6-30 and 2008-12-31

Note: tα0 is the t-statistic for α0; t1 is the t-statistic for β1. The statistical significance for tα0 and t1 is at 5% level. Pi,t is price per share (market value) of equity for firm i at the end of period t; Ei,t is the annualized earnings per share for firm i in period t; Bi,t is book value per share for firm i at the end of period t. Following Bowen (1981), Burgstahler and Dichev (1997) and Bao and Bao (1998), the variables are normalized by beginning net book value per share.

Table 4 shows estimates of the coefficients for the simple linear equation which is relating Pit / Bit-1 to Bit / Bit-1 (Eq. [2]). As exhibited in Table 4, the coefficient for book value is positively significant for all the years under study. This means that book values is significantly associated with stock price for the time period as sample. What is interesting is that because the adjusted R2 is higher for half of the period regressions, the estimates in Table 4 indicate that there is a more important relation between book value and equity value than earnings. In the specific environment of China, book value seems to be more important to investors in equity value of a firm.

As Burgstahler and Dichev (1997) claim, within a turbulent economic environment the adaptation value may play a more important role than the recursion value. Since it is relatively not easy to determine the market value of an asset by projecting future expected earnings in an unstable business environment than in a stable one, it may be that Chinese investors give more weighting to the value of assets more than their potential value. In a volatile environment, where companies’ losses and failures are common, it seems that investors concern less about future expected earnings that may not be realized. The average adjusted R2 for Model 2 in Table 4 (approximately 55%) is also higher than that of Model 1 in Table 3 (46%), showing a stronger relation between book value and equity values than between earnings and equity values of firms.

Table 4

Market value of Chinese firms as function of bo本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。