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, 2009) The total market capitalization of listed firms increased about 1522-fold over the 18-year period, from 11billion reminbi in 1991 (equivalent to about US$1.3 billion) to 12056.6 billion renminbi (equivalent to about US$1773 billion) in 2008 (Table 1). As of 24 April 2009, the total market capitalization was valued as 16742.768 billion renminbi (equivalent to about US$ 2462 billion) (Haw et al., 1999).

Table 1

Number of Listed Firms and Market Capitalization in Chinese Stock Exchange – 1991- 2008

Source: The Shanghai Stock Exchange (SHSE), Shanghai, China

Note: The SOEs listed in this in these two domestic exchanges were originally authorized to issue common shares only to Chinese citizens, which is called “A-shares”. Since 1992, some of the selected A-shares companies have been allowed to foreign investors, which are called B-shares. Only less than 1 percent of the total market value was financed through the selling of B-shares. Thus, the A-shares are the primary source for equity financing for listed Chinese firms.

2 Literature review

In this section, I initially discuss studies that examine the relationship between equity value and earnings and the relationship between equity values and book values respectively; then I examine the association of earnings and book values with equity values; finally I will focus on studies that have examined data from the Chinese stock market.

2.1 Studies examining association of earnings with equity value

Generally speaking, much of the research in this area for the last 30 years was focused on inspecting the relationship between certain variables and equity values or stock price. In a seminal study, Ball and Brown (1968) found a positive and statistically significant association between earnings and equity value. An empirical evaluation of accounting income figures required for agreement as to what real-world results constituted a useful appropriate test.

Because net income was a figure of particular interest to investors, the result they used as the standard forecast was the investment decision making as it was reflected in security prices. Since usefulness could be reduced by deficiencies in either of the content or the timing of existing annual net income numbers, both of them would be evaluated.

The developments of capital theory at that time provided more choices to the price of security as an operational test of the usefulness of business. Impressive Institutions to support the idea of the theory that the capital market are both effective and fair, if the information is useful in forming capital asset prices, then the market in asset prices will be quickly adjusted to the information without leaving any opportunity for further abnormal gain.

As the evidence indicates, if stock price do in fact really quickly adapt to the new information and then changes in stock prices will reflect the information market. As observed revision of stock prices and income report published would provide the evidence that the information reflected in the income figures are useful. Ball and Brown’s method of accounting on income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。