The Effect of Political and Economic Institutions on the Value Relevance of Accounting Information: The Case of China

Shwu Hsing Wu, Canri Chan, Tzu-Chuan Kao


This paper is motivated by the value-relevance of accounting information literature and recent significant economic, accounting and
institutional changes in the emerging Chinese stock markets. The purpose of this paper is twofold. Firstly, we investigate whether accounting
information based on Chinese accounting standards (CAS) or earnings based on International Financial Reporting Standards (IFRS) is more
useful and relevant to investors. Secondly, we examine whether or not the combined value-relevance of earnings and book values has increased
over time in the Chinese stock market. Our findings suggest that accounting earnings based on both CAS and IFRS were significant for
explaining A- and B-share stock prices, respectively.
The results of yearly regression analyses generally show that the combined value-relevance of CAS and IFRS earnings and book
values for A-shares and B shares was significant. However, the results indicate that total explanatory power for A-shares has increased,
whereas it has decreased for B-shares over time.
Our study makes several contributions to the literature. Firstly, our study extends the literature by examining comparative valuerelevance
between PRC GAAP and IAS in the A- and B-share markets using data from 2001 to 2003. Few studies, if any, examine the valuerelevance
of accounting information in the Chinese stock market after 2000. Secondly, we fill the gap by investigating whether the combined
value-relevance of CAS and IFRS accounting information increased over time in the Chinese stock markets after the accounting reforms.

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