Does earnings quality matter? Evidence from the Athens Exchange

Abstract

The relation between accounting earnings and firm valuation has long been a topic of interest to academics and stock market participants. The study analyses the relationship between earnings quality and firm value using a sample of non-financial firms with shares listed on the Athens Exchange over the period 2004-2019. The empirical findings indicate that investors value earnings quality, and this is reflected in a better valuation for firms having earnings of higher quality. The results are robust to different methodologies and controls for firm-specific factors. The evidence is of particular importance for Greek firms seeking to expand their sources of financing beyond the Greek banking system. Such a development requires constant monitoring and strengthening of the corporate governance framework, with the aim of improving the quality of information conveyed by the firms to investors. In this respect, the provisions of Law 4706/2020 regarding the Greek corporate governance framework and the operation of the Hellenic Capital Market Commission seem to be in the right direction.