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Key research themes
1. How do various proxies measure earnings quality consistently across different contexts and what are their limitations?
This theme investigates the multiplicity of earnings quality (EQ) definitions and measurement approaches, focusing on how earnings quality is conceptualized and quantified using different proxies such as persistence, predictability, smoothness, accrual quality, timeliness, and market-based indicators. Considering the challenges in finding a universally accepted measure, several studies assess the consistency and validity of these proxies, especially in emerging markets and various industry contexts. This focus is critical for academic research and practice as inconsistent measurement undermines stakeholder decision-making and comparability.
Key finding: This paper empirically finds that commonly used earnings quality measures—persistence, predictability, smoothness, earnings surprise, and accrual quality—lack full consistency when applied to Indian firms, implying that no... Read more
Key finding: The study applying four distinct approaches to measuring earnings quality reveals that approximately 92% of textile firms in Bangladesh show inconsistent earnings quality results across measures, reinforcing concerns about... Read more
Key finding: Through analysis of 90 NYSE companies, the paper demonstrates that different approaches to measuring earnings quality yield divergent assessments, leading to the conclusion that no company or sector should be classified as... Read more
Key finding: This comprehensive review highlights that earnings quality is contingent on specific decision contexts and is influenced by both firm fundamental performance and accounting measurement. It emphasizes that no single earnings... Read more
Key finding: This thesis develops a composite model capturing multidimensional earnings quality facets—persistence, predictability, and informativeness—showing that earnings informativeness dominates other dimensions in explaining firm... Read more
2. What is the impact of corporate governance mechanisms, particularly audit committees and managerial discretion, on earnings quality?
This theme explores the moderating role of corporate governance structures and practices—such as audit committee characteristics, board independence, fair value accounting discretion, and governance strength—on earnings quality. The focus is on how governance influences managers’ opportunistic behavior, earnings management practices, and accruals quality, providing empirical evidence that better governance mechanisms improve financial reporting reliability and reduce manipulation risks. This theme is significant for regulatory policy and internal control design aiming to enhance earnings quality.
Key finding: This comprehensive literature review synthesizes 48 archival studies revealing that managerial discretion in fair value accounting produces mixed effects on earnings quality, with lower-level fair value measurements... Read more
Key finding: Examining public companies in Jordan, this study finds that audit committee independence and frequency of meetings positively influence earnings quality, enhancing earnings persistence and reducing manipulation. This... Read more
Key finding: Using manufacturing firms from the Indonesian Stock Exchange, this study shows that earnings quality significantly influences investor reactions and stock returns, with asymmetric information impacting market efficiency.... Read more
Key finding: Focusing on audit engagement partners' attributes, this paper finds that female and more experienced partners contribute to lower discretionary accruals, indicating higher accruals quality. This highlights how auditor... Read more
Key finding: The study of Nigerian agro-allied firms finds that financial reporting quality, proxied by earnings quality, is significantly positively influenced by firm solvency and gearing, while board size and meeting frequency have... Read more
3. How do economic shocks and external factors, such as financial crises and industry-specific characteristics, influence earnings quality and firm valuation?
This research theme examines the effects of macroeconomic events (e.g., financial crisis), industry contexts, and firm-specific earnings components on earnings quality and the subsequent impact on firm valuation metrics and investor decisions. It emphasizes the dynamic nature of earnings quality under external pressures, how firms may engage in earnings management during economic downturns, and the implications for predictive validity and market assessment of firm performance. This area is vital for understanding earnings quality robustness across environments.
Key finding: Analyzing over 137,000 firm-year observations from advanced countries during the 2005-2012 period, this study reveals that earnings quality deteriorates during global financial crises, with more pronounced declines in... Read more
Key finding: This systematic literature review and empirical model development emphasize earnings quality's multidimensional nature—persistence, predictability, and informativeness—and its crucial role in firm valuation. The study... Read more
Key finding: Focusing on Nigerian commercial banks from 2012 to 2022, the study finds a significant positive relationship between earnings persistence—a core dimension of earnings quality—and banks' financial sustainability, controlling... Read more
Key finding: Using data from Indonesian non-financial firms between 2017 and 2020, this research empirically demonstrates that earnings quality, proxied by operating cash flow and net income ratio, and firm growth positively influence... Read more
Key finding: Investigating manufacturing firms on the Nigerian Stock Exchange, the study establishes a positive association between financial reporting quality, measured by accrual quality, and investors’ decisions to invest. The evidence... Read more