Earnings quality, information quality and investor protection : evidence from Chinese non-tradable shares reform

Abstract

This dissertation examines the roles of earnings quality and information quality with regard to capital reform of the Chinese stock market. This is the first study of its kind to show that lower information quality and poor earnings quality will result in a higher “total compensation amount” to holders of tradable shares when switching non-tradable capital stock into tradable shares. The total compensation amount is the amount that holders of tradable shares receive in compensation for their losses due to the conversion of non-tradable shares into tradable shares. Earnings quality was measured by accruals quality to test hypotheses about the relationships between earnings quality, information quality and the total compensation amount. The regression results of 1,290 Chinese listed-companies which are involved in the capital reform confirm that lower earnings quality leads to higher compensation to holders of tradable shares and that the total compensation amount increases as information quality decreases. Key Words: Earnings Quality, Information Quality, Investor Protection, “Non-tradable Shares Reform”, Compensation, Chinese Stock Market