The investigation of the relationship between corporate governance and earnings quality (original) (raw)
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This paper seeks to examine the association between corporate governance mechanisms and the quality of accounting earnings. We intend to highlight the impact of a strong, religious-based, central government where certain attributes influence corporate governance. Specifically, the study empirically investigates whether the association of corporate governance mechanisms with earnings quality (in particular, accrual quality, earnings persistence, and earnings predictive ability) in Iran is different from what has been established in accounting literature for other countries. Among many corporate governance components, four (4) variables of board size, extent of independent directors, board leadership, and the frequency of the board meetings are considered in this paper. We test our hypothesis using a sample of six hundred (600) firm-year observations of the Tehran Stock Exchange from 2005 to 2008. The general findings are: a larger board size yields a weaker earnings quality; and an increase in the number of independent directors and frequency of the board meetings, strengthen the firm's earnings quality in terms of earnings persistency and earnings predictability, however, they do not strengthen the accruals earnings. We, however, find no significant relationship between leadership structure and Iranian firms' earnings quality.
Corporate governance and earnings quality: the Iranian evidence
Journal of Distribution Science, 2013
Purpose-The main question in this study is whether there is any relationship between corporate governance variables and earnings quality. The size of the board and audit committee, the number of stockholding managers and non-executive directors, and management quality are considered as independent corporate governance variables in the hypotheses. Research design, data, and methodology-Earnings quality is used as the dependent variable. Input from the abovementioned variables are drawn from 94 listed companies in the Tehran Stock Exchange for the period between 2006 and 2010. Results-This study examines corporate governance aspects such as the size of the board of directors, the number of shares held by the board, the board's independence, and the percentage of nonexecutive directors. The results show that establishing an audit committee has a significant role in ensuring higher quality reported earnings. Conclusions-The regression statistics output reveals a meaningful relationship between earnings quality and the size of the board of directors, the number of non-executive directors, and the size of the audit committee. This result indicates that improving earnings quality requires that the size of the board of directors be taken into account.
The Effects of Corporate Governance on Earnings Quality: Evidence from Iran
2010
This paper seeks to examine the association between corporate governancemechanisms and the quality of accounting earnings. We intend to highlightthe impact of a strong, religious-based, central government where certainattributes influence corporate governance. Specifically, the study empiricallyinvestigates whether the association of corporate governance mechanismswith earnings quality (in particular, accrual quality, earnings persistence,and earnings predictive ability) in Iran is different from what has beenestablished in accounting literature for other countries. Among manycorporate governance components, four (4) variables of board size, extentof independent directors, board leadership, and the frequency of the boardmeetings are considered in this paper. We test our hypothesis using asample of six hundred (600) firm-year observations of the Tehran StockExchange from 2005 to 2008. The general findings are: a larger board sizeyields a weaker earnings quality; and an increase in th...
Earnings Quality: A Missing Link between Corporate Governance and Firm Value
The existing literature concerning governance-value relationship is inconclusive as it assumes that the association is direct. A theoretical argument suggests that the effective corporate governance reduces the information asymmetry through better financial reporting quality. This serves as a tool to reduce this information risk. Following the argument, our study is an attempt to investigate the mediating role of earnings quality, a measure of financial reporting quality, in governance-value association. For estimation, we use a panel data of 214 non-financial listed firms in Pakistan for the period 2003-2014 and employ one-way random effect estimator for the SUR system, as suggested by Biørn (2004). Our findings show that the corporate governance effectively improves the earnings quality and value of the firm, which approves the monitoring role. Moreover, earnings quality contributes positively in maximizing the value of the firm and the results demonstrate that better earnings quality partially mediates the governance-value association. It is concluded that corporate governance not only improves the value of the firm directly, but also indirectly through the channel of earnings quality.
Earnings Quality- A Missing Link between Corporate Governance and Firm Value, Bhatti
The existing literature concerning governance-value relationship is inconclusive as it assumes that the association is direct. A theoretical argument suggests that the effective corporate governance reduces the information asymmetry through better financial reporting quality. This serves as a tool to reduce this information risk. Following the argument, our study is an attempt to investigate the mediating role of earnings quality, a measure of financial reporting quality, in governance-value association. For estimation, we use a panel data of 214 non-financial listed firms in Pakistan for the period 2003-2014 and employ one-way random effect estimator for the SUR system, as suggested by . Our findings show that the corporate governance effectively improves the earnings quality and value of the firm, which approves the monitoring role. Moreover, earnings quality contributes positively in maximizing the value of the firm and the results demonstrate that better earnings quality partially mediates the governance-value association. It is concluded that corporate governance not only improves the value of the firm directly, but also indirectly through the channel of earnings quality.
Is the Implementation of Good Corporate Governance Able to Improve Earnings Quality
Proceedings of the Sixth Padang International Conference On Economics Education, Economics, Business and Management, Accounting and Entrepreneurship (PICEEBA 2020), 2021
The purpose of this research is to analysis the effect of implementing good corporate governance on quality information of earnings. The population of this study is all non-financial firm that are included in the fast-growing company. We found in this study that board structure and process have a positive contribution on quality of earnings information. Ownership control and characteristics negatively affect on quality of earnings information. Size of the firm has a positive influence on earnings quality. Firm size affects the relationship of good corporate governance to earnings quality.
Sustainability, 2018
This study investigates whether corporate governance mechanisms are associated with earnings quality, especially accurate earnings reporting, and whether investors react differently to inaccurate earnings according to governance strength. Earnings accuracy is one of the key factors affecting a firm’s sustainability in the sense that reported earnings provide information about a firm’s long-term sustainability and further are directly associated with a firm’s cost of capital. In this paper, we employ the independence of the board of directors (BOD) and foreign ownership as governance mechanisms associated with the earnings gap between audited and unaudited earnings. Using 1976 non-financial firm-year observations listed on the Korea Stock Exchange from 2013 to 2016, we find that the gap between unaudited earnings and actual earnings is smaller for firms with independent BODs and foreign ownership, suggesting that earnings accuracy is higher for firms with effective corporate governan...
The Role Of Corporate Governance On Earnings Quality From Positive Accounting Theory Framework
International Journal of Scientific & Technology Research, 2020
This study aims to examine the effect of bonuses, debt financing, tax avoidance and corporate governance on earnings quality as well as the role of corporate governance on the effect of bonuses, debt financing, tax avoidance on earnings quality. This research is quantitative research with multiple linear regression models. The sample used in this research is all nonfinancial companies listed on the Indonesia Stock Exchange (IDX). The type of data used in this study is secondary data in the form of financial statements and annual reports from 2012 to 2016. The sample selection using a purposive sampling method with the number of samples amounted to 344 observations. This study uses data with the same number of five years, so that this study employs panel data. This study suggests bonuses are negatively associated with earnings quality. This manager's opportunistic behavior is in line with the hypothesis plan bonus. Debt financing is positively associated with earnings quality. Ta...
Evaluation of the Effects of Corporate Governance on Financial Reporting Quality
Journal of Modern Accounting and Auditing, 2019
Corporate governance is designed to stimulate the investment environment and to create a stable financial situation in the capital markets by increasing the level of reliability, transparency, and accountability at the firm level. This study aims to examine whether corporate governance leads to higher quality financial reporting. This research has been performed using companies listed on Borsa İstanbul (BIST). For this purpose, two samples from the publicly held companies on BIST, which are included in the Corporate Governance Index and which are not included in this index, have been formed. Thus, we examined whether there is any difference between the financial reporting quality of the companies listed in Borsa İstanbul Corporate Governance Index and the financial reporting quality of the enterprises that are not included in this index. Since the quality of financial reporting is a multi-dimensional concept, it can be evaluated by different measurement methods focusing on different dimensions in the literature. One of these approaches used to measure the quality of financial reporting is the quality of earnings. The evaluation of the financial reporting quality of the enterprises included in the BIST Corporate Governance Index and the enterprises not included in the index were evaluated through different methods to compare two different samples in the context of the earnings quality approach. Panel data analysis was used to evaluate the financial reporting quality of the two samples by means of earnings quality methods. The data related to the models used in the assessment of financial reporting quality were obtained from the Public Disclosure Platform (KAP) and Equity RT database. The research covers 72 enterprises, 36 of which are in the Corporate Governance Index and 36 of which are not in the Corporate Governance Index.