Corporate profits, earnings management and ERC—An empirical analysis based on China listed companies

This paper adopt data of China´s A-share listed companies, empirical test the relationship among company´s profit, the degree of earnings management and earnings response coefficients(ERC). Research found: First, company´s profitability can significantly raise stock return, which means ERC is significant positive. Second, the degree of earnings management can significantly influence the relationship between company´s profit and stock return, which means the bigger the earnings management, the smaller the ERC. Third, the absolute value of the degree of earnings management doesn´t exhibit a significant association with ERC. Fourth, the company which made positive earnings management gets a lower ERC than company which made negative earnings management. In a word, when investors make investment decision, they are not only considering the influence of earnings management, but also identify earnings management direction and motivation.