Timeliness of earnings reported by Romanian listed companies

Mihai Carp,Constantin Toma

doi:10.24818/jamis.2018.01003

Abstract

The paper aims to analyze the quality of financial information, by assessing the timeliness of earnings, using information specific to non-financial companies listed on the regulated section of Bucharest Stock Exchange. The study also seeks to assess the symmetry of actions for the timely recognition of potential gains and losses (components of the economic income) and, if there is an asymmetry, to identify the sense of the temporary gap. The phenomenon is analysed in conjunction with a number of control factors such as the Romanian Accounting Standards (RAS), the International Financial Reporting Standards (IFRS), the degree of indebtedness or the entities’ field of activity. Quantitative analysis performed through econometric models consecrated in the field, such as Basu (1997) and Ball and Shivakumar (2005), reveals that the companies included in the study provide financial information that meets the qualitatively criterion assessed, respectively earnings timeliness. Deepening the analysis has made it possible to identify a timely recognition both for unrealised gains and potential losses, as a result of tests carried out on the whole sample, an advance in what concerns the inclusion of economic lose in the accounting income compared to the recognition of economic gains. The presence of disjunctive factors in the analysis generated a number of particular results. In the case of normally indebted companies that apply the IFRS, a timely recognition of economic gains and losses was noted, without the gap specific to conservatism.

Highlights

The utility for investors of financial information reported by business entities is conditional upon the latter’s fulfilment of certain quality criteria
The timeliness of the financial information published by companies is defined by reference to the ability of the accounting income to expand its perimeter of recognition towards the size of the economic income (Lara & Mora, 2004) respectively, to include potential gains and losses resulting from future cash flows generated by current operations (Ball & Shivakumar, 2005)
In the case of companies with a normal level of indebtedness and which apply the International Financial Reporting Standards (IFRS), we found a timely recognition of economic gains and losses, similar to results identified by the Dargenidou and McLeay (2010), Dimitropoulos et al (2013) and Rodríguez García et al (2017) respectively, without the gap specific to conservatism

Summary

Introduction

The utility for investors of financial information reported by business entities is conditional upon the latter’s fulfilment of certain quality criteria. IFRS establish and rank the qualitative characteristics required from financial information, grouping data into two categories: fundamental (relevance and faithful representation) and amplifying (comparability, verifiability, intelligibility and timeliness) (IASB, 2015). In this context, the timeliness of the financial information published by companies is defined by reference to the ability of the accounting income to expand its perimeter of recognition towards the size of the economic income (Lara & Mora, 2004) respectively, to include potential gains and losses resulting from future cash flows generated by current operations (Ball & Shivakumar, 2005). The evolving connection among information reported through financial statements, as a tool for the identification of transient elements (gains and potential losses) is captured in the models whose starting point is the deterministic relation proposed by Ball et al (2000a)

Objectives

Findings

Discussion

Conclusion