Earnings Quality Of Companies Research Articles

The Effect of ESG and Earnings Quality on the Value Relevance of Earnings and Book Value

This paper aims to investigate the value relevance of ESG (environmental, social and governance) and earnings quality of companies listed on the Indonesia Stock Exchange during the period from 2012 to 2022. Furthermore, this study also investigates the value relevance of earnings and book value in the presence of ESG and earnings quality. The value relevance was operationalized using Ohlson's price model (1995), and data was extracted from the Refinitiv database. Based on 353 firm-years, the panel data analysis indicates that ESG and earnings quality have value relevance; this proves that information about ESG and earnings quality are used by investors and stakeholders as a basis for decision-making. Moreover, the presence of ESG has a negative impact on the value relevance of earnings but has a positive impact on the value relevance of book value. By contrast, with ESG, the presence of earnings quality has a positive impact on the value relevance of earnings but has a negative impact on the value relevance of book value, implying that when the quality of accounting information increases, users rely more on earnings information rather than book value. A robustness test testing was also carried out by conducting sub-sample tests based on the period during which the COVID-19 pandemic occurred during the research. Results show that before the pandemic, users tended to be more interested in ESG information, while during the pandemic, users tended to focus more on earnings quality information as a basis for decision-making.

Earnings Quality of Companies Listed on The Indonesian Stock Exchange

Earnings is one of the indicators used in assessing company performance and investment decisions making process. Entities that have high profit does not necessarily have high-quality earnings. This study analyzes the earnings quality of companies listed on the Indonesia Stock Exchange from 2017 to 2021. The sample in this study was 272 companies which were determined using the purposive sampling method. This study uses secondary data, namely financial statements and closing stock price information consisting of 3 days before, the day of publication of financial statements, and 3-days after publication. The study sample analyzed with the Earnings Response Coefficient (ERC). Tests are carried out every year from 2017 to 2021 using the regression test. The test results show that there is no increase in the quality of earnings for companies listed on the Indonesia Stock Exchange. The test results also show that earnings quality decreased from 2017 to 2021. Thus, stakeholders can use other financial indicators or combine profit indicators with different hands in the investment decisions making process and in evaluating company performance.

The Influence of Audit Quality on Profit Quality in Sharia Banks Listed on the Indonesia Stock Exchange

A healthy company will have good earnings quality, and an independent public accountant will give a good value to the company's earnings quality. This study aims to determine the effect of audit quality on earnings quality in sharia banks. This study uses explanatory research based on hypothesis testing. The data source is secondary data from sharia banking companies listed on the IDX for the 2021-2022 period and is based on quarterly financial reports. The sampling technique was purposive sampling with a total sample of 4 sharia banks. The analysis used is descriptive, simple linear regression, and hypothesis testing. The results showed that there was no significant effect between audit quality variables on earnings quality. The audit quality of sharia banking companies listed on the IDX cannot be determined from the quality of the auditors. This is indicated by the formation of sharia banking which must have reliable governance to encourage strong and effective sharia compliance so that the public image, namely the interests of stakeholders, can realize economic activities in accordance with sharia principles.

STATUTORY ATTRIBUTES OF FEMALE DIRECTORS AND EARNINGS QUALITY IN INDONESIA

All parties with an interest in the company need quality earnings information for economic decision making. This creates a moral hazard on the part of management to use various means in order to provide good news for these parties. This study aims to examine the effect of various attributes required by law (namely business education background, proportion, years of service, and foreign citizenship) related to the presence of women in top management on the earnings quality of companies in Indonesia. With the sample criteria set, 467 observations were obtained for companies listed on the IDX in 2015 - 2018. The results obtained indicate that the business education background and foreign citizenship of female directors affect earnings quality. Meanwhile, the proportion and tenure of female directors have no effect on earnings quality.

Board Characteristics and Company Performance: A Case Study for the U.S.

This research aims to investigate corporate board structures and compositions, as well as their interrelationships. An empirical analysis on a sample consisting of 6,962 public traded U.S. corporations was conducted and the "isolation" consequences of board characteristics such as independence, financial expertise, and tenure on a company's earnings quality were examined. Furthermore, it was investigated whether and to what extent the tenure of outside directors influences the "isolation" effects of financial expertise and independence on earnings quality. The Modified Jones model was used to generate discretionary accruals, which were subsequently used to generate accrual-based earnings management. Firms with a more independent board and a higher proportion of outside directors with financial experience are found to have no effect on the degree of accrual-based earnings management. Outside directors' average tenure, on the other hand, has a negative and significant impact on earnings management. The study demonstrates that the average tenure of outside directors affects their independence as well as their financial expertise. Both have a statistically significant positive influence on accrual-based earnings management. This indicates that, even if outside directors are independent and there is at least one outside member with financial expertise on the board, the effectiveness of their monitoring decreases over time. In this study, the quality of earnings is examined using accrual-based earnings management models. The influence of these board qualities on real earnings management, however, has not been studied. As the usage of real earnings management has expanded in the post-SOX era, the utilization of these models is intriguing for future study pertaining to the effect of these characteristics. Furthermore, this study utilized and analyzed only a sample of large public U.S. enterprises, which are larger companies. Due to the SOX requirements to which these larger organizations are subject, this might contribute to a lack of diversity in the board makeup of these companies. This may have an effect on the regression findings by displaying low or non-significant effects. Future research may find it interesting to determine if there are differences between the effects of these governance qualities on earnings management for smaller and larger companies. Based on the findings, it is possible to conclude that when evaluating a firm's profits quality, it is critical to evaluate both the structure and makeup of the board, as well as the individual features of the outside members, such as their tenure. This study adds to the expanding corpus of research on the impact of board characteristics on corporate performance. It focuses on corporations situated in the United States, where corporate governance is a hotly debated topic, particularly after the enactment of SOX. It not only looks at the effect of these characteristics on earnings quality in "isolation", but it also responds to recent calls for researchers to look at the interaction of various board traits. It examines whether and to what extent outside directors' tenure influences the "isolation" consequences of financial expertise and independence on earnings management.

The Influence of CSR, Environmental Awareness and Audit Committee Quality on Company Earnings Quality

This study aims to examine the effect of Corporate Social Responsibility (CSR), environmental awareness and audit committee quality on earnings quality. The research methods used are quantitative research methods and associative methods. The population in this study is the Sri Kehati Index company listed on the Indonesia Stock Exchange for the 2016-2020 research period, totaling 25 companies, from the total population a purposive sampling technique is used with several criteria to determine the sample, so that a sample of 8 companies is obtained. The data analysis technique used in this study uses eviews10 which includes descriptive statistical tests, panel data model analysis, classical assumption tests and hypothesis testing. The results of this study indicate that partially corporate social responsibility (CSR) is considered to have an effect on the Earning Quality of Sri Kehati Index companies listed on the Indonesia Stock Exchange for the 2016-2020 period, while environmental awareness and audit committee quality are considered to have no effect on the Earnings Quality of Sri Kehati Index companies. Sri Kehati listed on the Indonesia Stock Exchange for the period 2016-2020. The results of this study also show that simultaneously the three independent variables, namely Corporate Social Responsibility (CSR), Environmental Awareness and the Audit Committee, do not have a significant influence on the dependent variable of Earnings Quality.

Thematic Area, Accounting and Taxation Relationship between Audit Committee Independence and Earnings Quality of Non-Financial Firms Listed at the Nairobi Stock Exchange, Kenya

Specifically, the study sought to determine the relationship between audit committee independence and the earnings quality of non-financial companies listed on the Nairobi Stock Exchange (NSE), as well as the effect of audit committee independence on earnings quality when ownership concentration is taken into consideration as a moderator of the relationship. The study followed a positivist research philosophy and employed a quantitative research design. The study's target population was the 39 non-financial companies listed on the NSE as of December 31, 2020. The study made extensive use of secondary data. For 13 years, information was gathered via a disclosure index (2008-2020). After running diagnostic and specification tests on the model under test, a panel regression model was used to analyze the data. The audit committee independence of non-financial enterprises listed on the NSE had a significant impact on the earnings quality of the companies in both the presence and absence of ownership concentration as a moderator, according to the findings. Additionally, the results revealed that the model that included a moderator outperformed the model that did not include a moderator (ownership concentration). The study comes to the conclusion that the independence of the audit committees of non-financial companies listed on the NSE has a significant impact on the quality of their earnings. Non-financial companies listed on the NSE, according to the findings, should evaluate the criteria used to determine the composition of their audit committees in order to ensure that they are more independent and diverse. This will eliminate earnings manipulations while also making directors more accountable to shareholders, thereby increasing investor confidence in the company.

EFFECT OF STOCK OWNERSHIP AND DIVIDEND POLICY ON EARNINGS QUALITY IN COMPANIES LISTED ON THE JAKARTA ISLAMIC INDEX

This study aims to determine the effect of stock ownership and dividend policy on earnings quality in companies listed on the Jakarta Islamic Index. This study uses a quantitative research method and uses panel data, combining time-series and cross-sectional data. The samples used in this study were eight companies registered in the Jakarta Islamic Index from 2015 to 2019. The data analysis technique in this study is multiple regression analysis using the SPSS 22 application. The results in this study indicate that partially institutional ownership has a significant effect on earnings quality, managerial ownership has a significant effect on the quality, and dividend policy has no effect on earnings quality.

Do CEO Characteristics Impact a Company's Earnings Quality?

Do CEO Characteristics Impact a Company's Earnings Quality?

ANALYSIS OF PROFIT GROWTH, PROFITABILITY, CAPITAL STRUCTURE, LIQUIDITY AND COMPANY SIZE OF PROFIT QUALITY

The purpose of this study is to examine the effect of earnings growth, profitability, capital structure, liquidity and company size on earnings quality in companies of Basic and Chemical Industries Listed on the Indonesia Stock Exchange (IDX). The time period of the study is 5 years, namely the 2014-2018 period.The population in this study includes all basic and chemical industry companies listed on the Indonesia Stock Exchange. The sampling technique uses purposive sampling technique. The type of data used is secondary data obtained from the Indonesia Stock Exchange website. The analytical method used is panel data regression analysis.The results of the study simultaneously showed that the independent variable affected earnings quality. While partially, company size, profitability, liquidity and company size variables have no effect on earnings quality, but capital structure variables that are proxy by leverage have a positive effect on earnings quality.

The impact of the global economic crisis of 2008 on earnings quality in Mexico

Purpose The purpose of this paper is to examine the earnings quality of companies listed on Mexico’s primary stock market, the Bolsa Mexicana de Valores (Bolsa) before and during the global economic crisis of 2008. Previous research has shown that these economic events can have potentially conflicting effects on the quality of earnings of listed companies in capital markets around the world. Design/methodology/approach This paper operationalizes earnings quality based on earnings management. Therefore, four constructs to proxy for earnings quality are developed from previous literature, and multiple regression analysis along with tests of differences across two time periods, 2005–2007 and 2008–2010, are used to determine if there is a significant change in the accounting quality of companies listed on the Bolsa before and after the start of the global economic crisis. Findings Results indicate a statistically significant decrease of earnings quality on three out of the four constructs used to proxy for earnings management. There is only one construct in this category that shows a significant increase of earnings quality. Research limitations/implications There are different number of constructs and methodologies used to test for earnings quality. This study draws on four different constructs on two dimensions of earnings quality from previous literature, but other methodologies and constructs can potentially be used as well, such as discretionary accruals. Furthermore, there is a chance that there can be confounding factors affecting the results of this study besides the effects of the global economic crisis. Finally, the sample used in this study comprises non-financial public companies listed on the Bolsa, which can affect the generalization of the results to countries other than Mexico. Practical implications The results of this study can be of interest to Mexican and foreign investors, standard setters and regulators of the Bolsa, as the results show a strong incentive to manage companies’ earnings using income smoothing in an emerging economy during an economic crisis even after converging to a higher-quality set of accounting standards. Results can also be of interests to investors and regulators in other Latin-American countries with economies similar to that of Mexico. Originality/value This is the first study to test the quality of earnings of Mexican companies before and during the global economic crisis of 2008. Thus, this study contributes to the accounting quality literature by offering evidence showing a significant increase of income smoothing during the global economic crisis for companies listed in a developing economy with a relevant history of economic crises, even when these companies were using recently converged, higher-quality accounting standards.

A comparative study of earnings quality of firms listed in the NEEQ market and the Growth Enterprise Market

ABSTRACTThis paper explores the differences in earnings quality between the National Equities Exchange and Quotations (NEEQ) companies and the Growth Enterprise Market (GEM) companies. The study finds that NEEQ companies and GEM companies have different characteristics in earnings quality. NEEQ companies have a significantly higher level of upward earnings management than GEM companies, while GEM companies have stronger incentives to manage earnings downward through a ‘big bath’ than NEEQ companies, owing to the special treatment and delisting regulations for GEM firms. We also find that the unique institutions of NEEQ have significant impacts on the earnings quality of companies. Innovation-layer companies, companies applying for IPOs, companies with independent directors, companies trading with market makers, companies with private equity (PE) or venture capital (VC) investment have higher earnings quality.

Earnings quality and travel convenience in China for non-local independent directors with accounting expertise

ABSTRACTIn the vast territory of China, travel convenience may be an important external influence on independent directors in their governance role. In this paper, the relationship between travel convenience and earnings quality is examined from the perspective of a non-local independent director with accounting expertise. We define travel convenience as existing where the high-speed railway takes less than one hour to travel from the location of the company’s office to the independent director’s home location. The study finds that travel convenience is positively associated with earnings quality of a company whose independent directors with accounting expertise are non-local. Earnings quality of companies whose independent directors with accounting expertise are local is higher than that of companies whose independent directors with accounting expertise are non-local and for whom travel is inconvenient. There is no significant difference in earnings quality between companies whose independent directors with accounting expertise are local and those whose independent directors with accounting expertise are non-local but for whom travel is convenient. Further study shows that this conclusion is still valid if we define travel convenience as existing when the geographical distance between the company and the non-local independent directors’ home location is less than 200 km or 100 km. This indicates that travel convenience enhances the governance effect of non-local independent directors and improves the company’s earnings quality.

The UK Stewardship Code and investee earnings quality

PurposeThe UK Stewardship Code was the first voluntary governance code specifically for institutional investors. The Code sets out the principles of effective stewardship by institutional investors toward their investee companies with the aim of improving long-term risk-adjusted returns to shareholders. This paper aims to examine whether compliance by institutional investors with UK Stewardship Code is related to the earnings quality of their investee companies.Design/methodology/approachThe association between institutional investor Code compliance and Code compliance quality and investee company accruals quality is investigated.FindingsFor a sample of large UK listed companies from 2013, the authors find reasonably high levels of compliance with the Code by institutional investors. The analysis does not suggest that Code compliance is positively related to investee company earnings quality. Rather, the finding is that substantial or long-term investments are more likely to result in effective stewardship regardless of Code compliance.Originality/valueThis study offers valuable insights regarding the efficacy of the Stewardship Code’s policy approach to improving corporate governance by institutional investors.

Effect of Audit Committee Expertise and Meeting on Earnings Quality in Indonesian Listed Companies: A Conceptual Approach

Purpose: The purpose of this paper will focus on monitoring and improving corporate governance through earnings quality. In particular, audit committee effectiveness is seen as a significant factor in ensuring effective corporate governance and in view of this, the aim of this paper is to develop a conceptual framework that will examine the impact expertise, meeting and meeting attendance on the earnings quality of companies.
 Methodology: Future empirical studies could be conducted quantitatively with secondary data. The report from annual reports of companies listed in Indonesia Stock Exchange (IDX) starting from the period of implementation of the new code on implementation guideline in 2013.
 Implication: In fact, the main issue was centered on financial reporting manipulations and there is need to examine and develop a mechanism that in addition, agency theory is expected to explain the above three factors in providing explanation to accounting information that relates to the earnings quality under study. Finally, it is expected that future empirical studies with this conceptual framework can enhance earnings quality for users of financial statements such as: investors, creditors, shareholders and other stakeholders in Indonesia and beyond.

The effect of internal control on earnings quality in Iran

PurposeThe purpose of the present research is to examine the effect of internal control and risk management on earnings quality of companies listed on the Tehran Stock Exchange (TSE).Design/methodology/approachData were collected from 560 listed firms on TSE, which were selected using systematic sampling. Descriptive statistics, Pearson correlation and panel data regression were used for data analysis during 2009-2014.FindingsThe results showed that earnings management reduces earnings relevance and book value relevance through short-term and long-term discretionary accruals.Originality/valueThe outcomes of the current study are quite interesting to academia and practitioners.

Influence of board interlocking on earnings management

ABSTRACT The participation of directors on more than one board is called “board interlocking”. This phenomenon contributes to the spread of management and governance practices, through directors sharing their knowledge and experiences on other boards. Thus, directors could “carry” the earnings management practices present in one company into another in which they sit on the board. It is assumed that the greater directors’ direct or indirect connections on boards, the greater the sharing of information, especially information that can be reflected in company earnings quality. In light of the above, the aim of this study is to verify the influence of board interlocking on earnings management in companies listed on the São Paulo Stock, Commodities, and Futures Exchange (BM&FBovespa). The study is characterized as descriptive, quantitative, and documentary, and uses a sample of companies listed on the BM&FBOVESPA between 2011 and 2013. For earnings management, the model from Kang and Sivaramakrishnan (1995) was used, while for interlocking, degree centrality measures were used for direct board member connections, and intermediation centrality for indirect connections. The results indicate that earnings management is influenced by the interlocking of board members. It is concluded that the greater the degree centrality, the greater positive earnings management is, and that variations in positive and negative accruals are influenced by board member intermediation. The results reinforce the idea that earnings management behavior can be transferred between companies by the directors that make up their boards.

Investigation of conservatism on earnings quality in companies listed in Tehran stock exchange

This study is investigating the relationship between conditional and unconditional conservatism on earnings quality for the companies listed in Tehran Stock Exchange for the time era of 2006 to 2011 This study uses Basu model as a proxy for time asymmetry of earnings. Variable DR*RET is positive (B3>0) and is significant in 0.05.so, as Basu (1997) says, this efficient is proxy for time asymmetry and use to calculate conservatism. This show that study sample is conservatism. Coefficient of earnings quality (CFO/NI (is -0.000217. This finding show that there is a significant relationship between conditional conservatism and earnings quality. After entering MTB, coefficient of earnings quality (CFO/NI (is 0.000215. this finding show that there is a significant relationship between unconditional conservatism and earnings quality.

The Effect of Surplus Free Cash Flow on the Relationship between the Board Structure and Earnings Quality of Companies Listed on Tehran Stock Exchange

In this study, is evaluated the effect of surplus free cash flow on the relationship between board structure and earnings quality of listed companies in Tehran Stock Exchange. This study attempts to empirically examine the role of surplus free cash flow (SFCF) as a moderator on the relationship between board structure and earnings quality. The statistical society this study consisted of all companies listed on Tehran Stock Exchange during the period 2008 to 2012 that after applying the restrictions according to of the systematic write-off method were available the number of 110 companies as statistical sample. Financial data of companies surveyed, is extracted from the existing database inclusive software and Informational sites the Tehran Stock Exchange and for data analysis is used Eviews and Excel software. In this study, from multivariate regression to test the hypotheses is applied using hybrid data method. The results show that the hypothesis of the first, third and fifth of the relationship between board structure has a significant relationship with reported earnings quality. And the second and fourth hypotheses the effect of surplus free cash flow on the relationship between board structure (board size and board independence) there is a significant relationship with the earnings quality. But in the sixth hypothesis the effect of surplus free cash flow on the board structure (independence Chairman and CEO) and earnings quality is effective, will be rejected.

An Investigation on the Earnings Quality in Companies (Evidence from Iran)

A considerable focus of bottom-line income losses is important in the case of investigating quality of earnings. The future of stock returns is all associated with accruements that are in relation with reliability, and negativity. Earning increases that are accompanied by high accruals, suggesting inferiority of earnings, are related with poor future returns. This study describes the investigation of different hypotheses earnings manipulation, extrapolative fundaments about future growth, and under reaction to changes in business conditions to explain accruals’ predictive power. Differentiations between the hypotheses are grounds on operating performance, the behavior of individual accrual items, discretionary versus fixed investment trust components of accruals, and special items. In the main hypothesis we tested stock return and Earning Quality separately. In this investigation firms in according to a mount of accruals. Later on the validity using within-industry comparisons, and data on Tehran stocks was checked. This means that earnings management occurs with a time lag by market participants. In this research it was indicated that components of accruals including changes in accounts receivable, inventory, other current assets, current liabilities and other current liabilities have not significant effect on stock return. It was also indicated that for discretionary accruals, decreasing of stock return is greater than the decreasing of stock return for non-discretionary accruals.