Search results for: quality-of-earnings

Quality of Earnings

Author : Thornton L. O'glove
File Size : 71.25 MB
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Earnings Quality

Author : Jennifer Francis
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This review lays out a research perspective on earnings quality. We provide an overview of alternative definitions and measures of earnings quality and a discussion of research design choices encountered in earnings quality research. Throughout, we focus on a capital markets setting, as opposed, for example, to a contracting or stewardship setting. Our reason for this choice stems from the view that the capital market uses of accounting information are fundamental, in the sense of providing a basis for other uses, such as stewardship. Because resource allocations are ex ante decisions while contracting/stewardship assessments are ex post evaluations of outcomes, evidence on whether, how and to what degree earnings quality influences capital market resource allocation decisions is fundamental to understanding why and how accounting matters to investors and others, including those charged with stewardship responsibilities. Demonstrating a link between earnings quality and, for example, the costs of equity and debt capital implies a basic economic role in capital allocation decisions for accounting information; this role has only recently been documented in the accounting literature. We focus on how the precision of financial information in capturing one or more underlying valuation-relevant constructs affects the assessment and use of that information by capital market participants. We emphasize that the choice of constructs to be measured is typically contextual. Our main focus is on the precision of earnings, which we view as a summary indicator of the overall quality of financial reporting. Our intent in discussing research that evaluates the capital market effects of earnings quality is both to stimulate further research in this area and to encourage research on related topics, including, for example, the role of earnings quality in contracting and stewardship.

How to Analyze Businesses Financial Statements and the Quality of Earnings

Author : Joel G. Siegel
File Size : 82.86 MB
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Tells how to evaluate pension plans, financial instruments, and cash flows, interpret key business ratios and financial indicators, and discover misleading practices

Capital Market Implications of Earnings Quality

Author : Bianca Ahrens
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In his speech from 1998 the former chairman of the United States Securities and Exchange Commission (SEC) Arthur Levitt pointed out that trust "is the bedrock of our capital markets" and that this must not be shaken by the erosion of earnings quality. He made clear that it is the challenge of the whole financial community to counteract such a development. This thesis deals with the question whether the importance of earnings for the capital market varies with its quality. The question arises, because in recent years a large number of firm scandals has shaken the trust in the reliability of reported earnings. In order to properly address the research questions, the literature on earnings quality definitions, quality measures as well as implications of earnings quality on capital markets is reviewed and critically discussed. The author investigates whether well known results concerning capital market implications of earnings quality remain stable for all measures considered. She answers the question of how earnings quality affects firm value, cost of equity capital, and the accuracy of analysts' forecasts taking into account the effects of determinants of earnings quality.

Earnings quality and earnings management

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Earnings Quality

Author : Elisa Menicucci
File Size : 72.17 MB
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This book provides an overview of earnings quality (EQ) in the context of financial reporting and offers suggestions for defining and measuring it. Although EQ has received increasing attention from investors, creditors, regulators, and researchers in different areas, there are various definitions of it and different approaches for its measurement. The book describes the relationship between EQ and earnings management (EM) since they can be considered related challenges, especially in the context of international financial reporting standards (IAS/IFRSs). EM occurs when managers make discretionary accounting choices that are regarded as either an efficient communication of private information to improve the informativeness of a firm’s current and future performance, or a distorting disclosure to mislead the firm’s true performance. The intentional manipulation of earnings by managers, within the limits allowed by the accounting standards, may alter the usefulness of financial reporting and lead to lower quality of earnings. The use of fair value in financial reporting has created a current debate about the impact it might have on EQ. At times, the high subjectivity in estimating fair value can allow opportunities for the exercise of management judgments and intentional bias, which can reduce the quality of financial reporting. Management discretion can result in high EM and hence in a reduction of EQ. Particularly during difficult financial periods, managers engage in EM to mask the negative effects of the turmoil, and in such circumstances accruals and earnings smoothing are attempts to reduce abnormal variations of earnings in such circumstances. This book is a valuable resource for those interested in wider perspectives on EQ and it adds to the research studies on this topic in the context of financial reporting.

Line Item Analysis of Earnings Quality

Author : Nahum D. Melumad
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Line-Item Analysis of Earnings Quality provides a comprehensive summary and analysis of the specific earnings quality issues pertaining to key line item components of the financial statements. After providing an overview of earnings quality and earnings management, Line-Item Analysis of Earnings Quality analyzes key line items from the financial statements. For each key line item, the authors: review accounting principles discuss implications for earnings quality evaluate the susceptibility of the item to manipulation describe analyses and red flags which may inform on the item's quality Line-Item Analysis of Earnings Quality will prove useful in conducting fundamental and contextual analyses through its analysis and evaluations"

The Effect of Institutional Ownership on the Quality of Earnings

Author : Uma Velury
File Size : 54.81 MB
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Earnings Quality and Earnings Management

Author : Sanjay Bissessur
File Size : 31.46 MB
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The Quantity and Quality of Education and Their Effects on the Earnings of Chemical Engineers

Author : Charles Robert Link
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The Quality of Accruals and Earnings The role of Accrual Estimation Errors

Author : Patricia M. Dechow and Ilia D. Dichev
File Size : 58.16 MB
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The effect of Earnings Quality and Internal Resource on the relationship between Tax Avoidance and Firm level Investment

Author : Cesilia Mgimwa
File Size : 52.33 MB
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Master's Thesis from the year 2019 in the subject Business economics - Investment and Finance, , language: English, abstract: The perception that corporate tax avoidance represents a shift of value from the government tax authority to shareholders has been questioned by recent studies that finds this perception to not be legitimate in the data. In this study, I point out the evidence of the positive relationship between tax avoidance and firm level investment so that to provide an evidence of the managers’ behavior of using savings from tax avoidance to fund firms’ investment activities. Furthermore, this study, examine the effect of earnings quality and internal resource on the relationship between tax avoidance and firm level investment. I collected data of 3085 firms from the KisValue database with accounting data for companies listed on the Korea Stock Exchange (KOSPI) from 2012 to 2017, to test the effect of earnings quality and internal resource on the relationship between tax avoidance and firm level investment. I start with year 2012 because in 2012, International Financial Reporting Standards (IFRS) adoption becomes compulsory to all listed companies in Korea. In contrast from previous research, this study looks at the relationship of tax avoidance and firm level investment from a different perspective by focusing on the effect of earnings quality and internal resource on this relationship. The evidence of this study suggests that tax avoidance is positively associated with firm level investment. In other words, when firms increase tax avoidance, the firm level investment also increases. Adding to Dobbins and Jacob (2016) and Axel and Joachim (2017) research that found lowered tax rates, induce higher investments. This study also finds the evidence that the relationship between tax avoidance and firm level investment depends on the availability of internal resource and the level of earnings quality. The relationship between tax avoidance and firm level investment is negative when the firm has greater internal resource and better earnings quality. These results suggesting that; firms with the presence of greater internal resource (i.e. internally generated cash flow) tend to rely less on tax avoidance to fund their investment than those firms with low internal resource. Similarly, firms with better earnings quality tend to rely less on tax avoidance to finance their investment than firms with poor earnings quality.

The Relation Between Earnings Quality and Earnings Management

Author : Manuel Sánchez Cabrera
File Size : 36.84 MB
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This research relates earnings quality with earnings management to determine if good or poor earnings quality is a signal of financial or accounting irregularities. This research also considers the persistence of earnings, cash flows and accurals between companies with high and/or low earnings quality.

Essays on the Effects of Variation in Earnings Quality on the Coast of Equity Capital

Author : Gerhard J. Barone
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Essentials of Financial Analysis

Author : George T. Friedlob
File Size : 44.57 MB
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An easy-to-use guide to financial analysis Essentials of Financial Analysis shows how to analyze a company as a prospective investment. This one-stop resource includes a basic introduction to accounting; shows how to use ratio analysis to evaluate a company's profit, liquidity, and solvency; and provides actual financial statements of a variety of companies as illustrations.

The Signal Quality of Earnings Announcements

Author : Lu Xie
File Size : 33.17 MB
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This study examines the revealed preference of informed traders to infer the extent to which earnings announcements are informative of subsequent stock price responses. From 2011 to 2015, a cartel of sophisticated traders illegally obtained early access to firm press releases prior to publication and traded over 1,000 earnings announcements. I study their constrained profit maximization: which earnings announcements they chose to trade vs. which ones they forwent trading. Consistent with theory, these traders targeted more liquid earnings announcements with larger subsequent stock price movement. Despite earning large profits overall, the informed traders enjoyed only mixed success in identifying the biggest profit opportunities. Controlling for liquidity differences, only 31% of their trades were in the most extreme announcement period return deciles. I model the informed traders' tradeoff between liquidity and expected returns. From this model, I recover an average signal-to-noise ratio of 0.4. I further explore two potential economic sources of this noise: (i) ambiguous market expectations of earnings announcements and (ii) heterogeneous interpretations of earnings information by the marginal investor. Empirically, I document that the informed traders avoided noisier earnings announcements as measured by both sources of noise.

Earnings Management Conservatism and Earnings Quality

Author : Ralf Ewert
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This monograph reviews economic models that study earnings management and conservatism in an information economics framework. Both introduce a deliberate or a mandatory bias in financial reports. The fundamental issue this monograph addresses is what economic effects these biases have on earnings quality. We focus on models of managers in firms interacting with rational capital market participants, and briefly consider some contracting models. The models allow us to analyze earnings management and rational inferences by market participants in equilibrium in a variety of settings and to pinpoint costs and benefits of earnings management. We discuss how investors can elicit the maximum information from the biased reports and what potential remedies actually achieve in equilibrium. For example, accounting standards that reduce discretion for earnings management may be detrimental from a welfare point of view. In rational expectations models earnings quality can be defined as the information content in reported earnings. We discuss the earnings response coefficient, value relevance, and accounting-based earnings quality measures and how they reflect changes in earnings quality. Further, we review analytical work on conservatism of accounting standards and why conservatism can be welfare-enhancing even though it introduces a bias in the earnings reports. It is exactly through this bias that the benefit arises. Therefore, a differentiated view of earnings management and conservatism is warranted; neither is principally desirable or undesirable, but this depends on the circumstances. The benefit of equilibrium models is that they offer a rigorous explanation for the phenomena and show that sometimes conventional wisdom does not apply. There exist subtle interactions between accounting standards, the institutional environment, and earnings management that lead to several insights that challenge conventional wisdom. The models describe the economics behind these results and the particular circumstances.

Division of Railway Expenses and Earnings

Author : Marshall Monroe Kirkman
File Size : 24.89 MB
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Earning Quality in Islamic Banks

Author : Grandis Imama Hendra
File Size : 82.10 MB
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The rapid growth of Islamic banks globally has shown a large awareness of Muslims. However, it may not be averted from potential risks that may reduce the popularity of Islamic banks, such as earnings management activities. The purpose of this study is to determine the extent of the quality of earning in Islamic banks. With distortions in earnings, Islamic banks are compromising the basic of the existence of profit sharing principle. By integrating the components of corporate governance, such as board independence, audit committee's expertise and SSB's expertise, this study aims to examine determinants of earning quality in Islamic banks. Banks characteristics are also examined to identify its significant influence on earning quality. 64 Islamic banks in 15 countries from MENA, ASIA and Europe are employed to be sample in this study. The main findings show that the earning quality of Islamic banks in ASIA is higher than in MENA. Moreover, the result documents that SSB's expertise, BIG 4 and leverage have a significant impact on earning quality in Islamic banks. None of corporate governance mechanisms has a significant influence on earnings quality, except SSB's expertise. This finding suggests on the improvement of sharia corporate governance mechanism to enhance the quality of earning. Studies on earning quality in Islamic banks are still limited. Major theoretical contributions includes that this study investigate earnings quality of Islamic banks worldwide. Understanding the role of corporate governance to curb earning management activities in Islamic banks makes this study unique.

International Financial Reporting Standards and New Directions in Earnings Management

Author : Oliveira, Jonas da Silva
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The fiscal market is an unpredictable torrent of information that modern organizations strive to understand. Business professionals dedicate themselves to understanding uncertain results around economic performance to improve management, reporting standards, and predict trends in financial statements. International Financial Reporting Standards and New Directions in Earnings Management is an essential reference source that discusses identifying the behavioral patterns of managers and the accounting policies they use in different opportunistic circumstances. Featuring research on topics such as earnings quality, risk reports, and investor protection, this book is ideal for regulatory authorities, accountants, impression managers, auditors, academics, students, and researchers seeking coverage on the theoretical, empirical, and experimental studies that relate to the different themes within earnings management.