We seek evidence of a link between accruals-based earnings quality (EQ) and cost of capital by examining two classes of shares traded in China's segregated markets during 1995-2000. The A- and B-shares introduced respectively for domestic and foreign investors carry identical cash flow rights,...

Employing a basic model of an economy comprising both the real and financial sectors, I show that the primitive risk measure for real investment decisions is earnings beta — defined as the (normalized) covariance between firm profitability (return on investment) and the aggregate profitability...