Abstract
This study applied the modified Jones´ model (1991) for selected companies of Mexico. This model aims to assess the impact of Discretionary Accrual Information (DAI) on financial reporting statements, in order to identify the value relevance of “earnings quality”. We applied methodological criteria of Chung et al (2005) and Mukit & Iskandar (2009). We analyzed financial information of the 35 stock included in the Index of Prices and Quotations (IPC) of the Mexican Stock Exchange (BMV) for the period 2000 to 2011. 19 companies met the specifications of the model, for 48 quarters of information. The analysis was done in three parts: first, an analysis of the modified Jones´ model under panel data considerations by using fixed effects and adjustments of performing autocorrelation of order 1; second, a correlation analysis between the residuals of the modified Jones´ model and the return of stock price in 3 annual closings years of study: 2007, 2008 and 2009; and third, we incorporated this variable (DAI) in the Ohlson model (of the financial and corporate accounting literature) and we tested it with panel data analysis, under fixed effects, throughout the study period.
Highlights
What do we mean by "earnings quality"? We identify a "high quality earnings" when they faithfully represent the characteristics of the fundamental processes of the company, and they are relevant for decision making.Journal of Entrepreneurship, Management and Innovation (JEMI), Volume 8, Issue 3, 2012: 21-3422 / Rocío Durán-Vázquez, Arturo Lorenzo-Valdés, Juan Manuel San Martín-Reynathe term "earnings quality" is meaningless without specifying the context of decision making.This concept was popularized by Lev (1989) when he incorporated the term "quality" as a descriptive characteristic of the profits
The relevance of the co-integration tests is attached to the “classical econometric” assumptions that observed data come from a stationary process, in this study the test was done under Johansen (1988) considerations, and the results showed that the Ohlson model has robust results for Mexican data
In order to identify the portion of the Discretionary Accrual Information we considered the total accrued information (TAI) as the sum of the accrued discretionary information (DAI) and accrued nondiscretionary (NDA)
Summary
What do we mean by "earnings quality"? We identify a "high quality earnings" when they faithfully represent the characteristics of the fundamental processes of the company, and they are relevant for decision making (under managerial point of view).Journal of Entrepreneurship, Management and Innovation (JEMI), Volume 8, Issue 3, 2012: 21-3422 / Rocío Durán-Vázquez, Arturo Lorenzo-Valdés, Juan Manuel San Martín-Reynathe term "earnings quality" is meaningless without specifying the context of decision making.This concept was popularized by Lev (1989) when he incorporated the term "quality" as a descriptive characteristic of the profits (profit or loss of business, involving both gains and losses). What do we mean by "earnings quality"? We identify a "high quality earnings" when they faithfully represent the characteristics of the fundamental processes of the company, and they are relevant for decision making (under managerial point of view). The term "earnings quality" is meaningless without specifying the context of decision making. This concept was popularized by Lev (1989) when he incorporated the term "quality" as a descriptive characteristic of the profits (profit or loss of business, involving both gains and losses). As it is linked to the utility (relevance) in decisionmaking, it has taken different paths of research, as highlighted Schelling (1978). We define Discretionary Accrued Information (DAI) as the difference between the Total Accrued Information (TAI) of the companies, minus No Discretionary Accrued (NDA) portion
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