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When financial statements are public, the choice between alternative reporting regimes constitutes a signal that addresses external stakeholders. Generally, the choice of more complex regimes acts as a complement of firms' transparency. However, in the absence of audits, opportunistic behaviors could be incentivized. This study aims to test whether SMEs' choice between alternative accounting regimes is associated with earnings quality.

Drawing on the literature about accounting choices and earnings quality, this study investigates whether the same conclusions are confirmed for SMEs. Using a sample of 4,054 Italian companies and 12,114 observations, it compared four earnings quality proxies of a group of companies that opted for the “Full” rules and those of a subsample of the population of companies that applied the Simplified rules.

The results suggest that the signaling power of accounting rules' choice could lead to wrong conclusions for SMEs. Indeed, a positive relationship emerged (H1) between the choice of the “Full” rules and income smoothing behaviors, while the same choice appears to reduce the probability to disclose SPOS. Moreover, the results suggest that opportunistic behaviors are more frequent for firms that have settled in a “non-cooperative” social environment (H2).

This study could foster research on financial reporting quality in private firms.

Comparing the quality of financial statements drawn up according to two alternative accounting regimes could provide useful suggestions for both users and regulators.

The results contribute to the limited literature on the implications of differential reporting. Finally, it enriches the literature about heterogeneity in accounting quality within private firms.

This study aims to analyse the effect of related party transactions (RPTs) on earnings quality in a sample of Spanish listed firms, as well as the moderating role played by female directors in the relationship between RPTs and earnings quality.

The sample includes non-financial Spanish listed firms from 2005 to 2019. The authors use panel data analysis based on the firm fixed-effect estimator. Additionally, the authors use the two-step system generalized method of moments estimator to test the robustness of the results.

The results show a negative effect of RPTs on earnings quality. Further analysis reveals that the negative effect is mainly driven by transactions between the firm and its directors and major shareholders, as well as by RPTs that are more likely to reflect insiders’ self-interest. Moreover, the authors show that the presence of female directors reduces the negative impact of RPTs on earnings quality.

The study provides practical implications for investors, auditors and policymakers, who should be aware that RPTs might harm earnings quality and adversely affect the flow of financial capital to promising investment opportunities. Additionally, the study evidences the key governance role played by female directors regarding financial reporting policies as RPTs increase.

The findings promote the need for a higher representation of women in leadership positions since the authors reveal the key governance role played by female directors regarding financial reporting policies as RPTs increase.

The results to emerge from the study complement available evidence concerning the effect of RPTs on earnings quality in a continental European country. The authors also provide novel evidence vis-à-vis the role of female directors in the relationship between RPTs and earnings quality.

This study aims to investigate how gender diversity and remuneration of boards of directors’ influence earnings quality for Spanish-listed firms.

The sample includes 105 nonfinancial Spanish firms from 2013 to 2018, corresponding to an unbalanced panel of 491 firm-year observations. The primary empirical method uses a Tobit semiparametric estimator with firm- and industry-level fixed effects and an innovative set of measures for earnings quality developed by StarMine.

Results exhibit a positive correlation between increased gender diversity and a firm’s earnings quality, suggesting that a gender-balanced board of directors is associated with more transparent financial reporting and informative earnings. We also find a nonmonotonic, concave relationship between board remuneration and earnings quality. This indicates that beyond a certain point, excessive board compensation leads to more opportunistic manipulation of financial reporting with subsequent degradation of earnings quality.

This study only covers nonfinancial Spanish listed firms and is silent about how alternative board features’ influence earnings quality and their informativeness.

This study introduces measures of earnings quality developed by StarMine that have not been used in the empirical literature before as well as measures of board gender diversity applied to a suitable Tobit semiparametric estimator for fixed effects that improves the precision of results. In addition, while most of the literature focuses on Anglo-Saxon countries, this study discusses board gender diversity and board remuneration in the underexplored context of Spain. Moreover, the hand-collected data set comprising financial reports provides previously untested board features as well as a nonlinear relationship between remuneration and earnings quality that has not been thoroughly discussed before.

This study aims to inspect the impact of earnings quality on corporate cash holdings of Jordanian companies listed on the Amman Stock Exchange.

This study examines a large sample of (98) Jordanian companies listed on the Amman Stock Exchange during the period that ranges from 2009 to 2019. Earnings quality was computed using two different methods; firstly, through the absolute abnormal discretionary accruals (as an inverse measure of earnings quality), which were estimated using the Dechow et al.’s (1995) cross-sectional version of the Modified Jones model and the Kothari et al. (2005) model; and secondly, through earnings persistence as a direct measure of earnings quality.

The empirical results of this study reveal that poor accounting quality (high levels of abnormal discretionary accruals) is associated with higher levels of cash holdings, implying that as the quality of earnings decreases, the harmful effects of information asymmetry and adverse selection costs will increase, leading, therefore, Jordanian companies to increase their corporate cash holdings levels to act as a buffer against any cash shortages. Further, the authors document that higher accounting quality (more persistent earnings) is associated with lower levels of cash holdings. In addition, this study found that earnings quality negatively and significantly affects the cash holdings of profitable companies in Jordan. Thus, earnings quality appeared to be a significant determinant of cash holdings for profit-making companies but not for companies enduring losses.

This study contributes to the limited evidence that investigates the relationship between earnings quality and corporate cash holdings. Where the majority of previous studies have focused on developed economies, to the best of the authors’ knowledge, this study is the first in Jordan to comprehensively explore the relationship between earnings quality, computed by the absolute abnormal discretionary accruals and earnings persistence, and corporate cash holdings. Also, it is the first to explore the nature of the earnings quality-cash holding nexus in loss-making companies compared with their profit-making counterparts to the best of the authors’ knowledge. The results of this study have important policy implications for managers, creditors, investors and academics in Jordan and other emerging economies that share similar characteristics.

The purpose of this study is to establish the relationship between chief executive officer (CEO) power, audit committee effectiveness and earnings quality in regulated firms in Uganda.

The authors employed cross-sectional and correlational research designs, based on a sample of 136 regulated firms in Uganda. Data were collected using a questionnaire survey from Chief Finance Officers and Chief Audit Executives. Data were analyzed using a Statistical Package for Social Sciences and Partial Least Squares Structural Equation Modeling.

Results indicate that CEO power causes negative variances in earnings quality. The results also reveal that audit committee effectiveness positively relates relatively similarly with earnings quality. In addition, CEO power and audit committee effectiveness are negative and significantly related. The results further indicate that CEO power and earnings quality are mediated by audit committee effectiveness.

CEO power creates an opaque accounting environment which may leave the stakeholders unable to evaluate the true economic reality of the firm. Audit committee effectiveness is an important enabler for reporting high-quality earnings even in the presence of a powerful CEO.

This study contributes toward a methodological stance of using perceptions to understand earnings quality in regulated firms in Uganda. This is probably the first study that has specifically explored earnings quality using only the fundamental qualitative characteristics of accounting information (as proxies) as enshrined in the Conceptual Framework for Financial Reporting 2018 particularly in Uganda since Her adoption of International Financial Reporting Standards in 1998. Second, the indirect effect of audit committee effectiveness and CEO power is tested.

This paper aims to examine the relationship between earnings quality and corporate cash holdings in an emerging economy. Existing literature posits that earnings quality is a result of information asymmetry and firms with lower earnings quality increases cash holdings, to shield the firm from future uncertainties. In this paper, the authors propose a ‘private benefits hypothesis’, which suggests that lower earnings quality is an indicator of opportunism and expropriation of resources in the firm, through tunneling or excessive executive compensations. As a result, firms with lower earnings quality increase cash holdings in their control, to increase their private benefits and to avoid the scrutiny of the external stakeholders. The authors further examine the monitoring role played by institutional investors on cash holdings, with varying degrees of earnings quality.

This study uses an unbalanced panel data sourced from Prowessdx, from 2000 to 2019. The analysis employs 20,231 firm-year observations from 2,421 firms. Earnings quality is calculated following Dechow and Dichev (2002).

Empirical analysis confirms that the firms with higher earnings quality reduce cash. Further, institutional investors reduce the cash holdings in firms with higher earnings quality. Institutional investors effectively reduce the cash only in firms with at least 10% of equity shareholding. The results are robust to alternative measures of earnings quality and endogeneity concerns.

This study diverges from the information asymmetry hypothesis in the existing literature on earnings quality and cash holdings and highlights the underlying private benefits hypothesis, that will impact cash holdings. Next, the 10% institutional shareholding is important in the Indian context as it represents the minimum threshold at which block holders can request extraordinary general meetings (Section 100 of the Companies Act 2013) or the involvement of the National Company Law Tribunal (NCLT) (Section 213 of the Companies Act 2013). This study highlights that unlike in Anglo-Saxon economies, institutional investors or other minority shareholders are empowered by the Companies Act 2013 to play a vital role in corporate governance with a mere 10% equity.

This paper aims to examine the association between the adoption experience of the International Financial Reporting Standards (IFRS) and the quality of reported earnings in the Gulf Cooperation Council (GCC) region – a region that exhibits several features of emerging economies.

The authors analyse a hand-collected dataset of 222 firms across 4 countries in the GCC region over the period 2012–2017 and measure “IFRS experience” as the number of years since a country has mandatorily adopted the IFRS. In measuring earnings quality, the authors focus on two properties of reported earnings: persistence and accruals quality and employ multivariate regression models based on two-way cluster-robust standard errors and fixed-effects.

This study’s findings suggest that earnings persistence is decreasing, and discretionary accruals are increasing in IFRS experience in the GCC region over the period 2012–2017. The authors conclude that reported earnings quality has declined following IFRS adoption in this sample.

The authors contribute to the IFRS literature in the GCC region, which is in its infancy.

This study’s findings have important policy implications for countries that are about to adopt or are in the early implementation stage of IFRS and suggest that strong enforcement of accounting standards along with improvement in the institutional environments might be needed for improving financial reporting quality.

The authors provide the first cross-country evidence on the relation between IFRS adoption in the GCC region and earnings quality. Moreover, unlike most prior studies, the authors employ a continuous measure that is superior to a binary measure in capturing the effect of IFRS adoption.

This study investigates the association between managerial ability and earnings quality in firms listed on the Iraq Stock Exchange and how the emergence of the Islamic State of Iraq and Syria (ISIS) influences the association.

This study uses a sample of firms listed on the Iraq Stock Exchange over the period 2012–2018. Managerial ability is quantified using data envelopment analysis, and earnings quality is measured by earnings restatement, earnings persistence, accruals quality and earnings response coefficient. Panel regression analysis is used to examine the research hypotheses.

The findings indicate that managerial ability positively affects earnings quality of Iraqi firms and that ISIS weakens the relationship between managerial ability and earnings quality. These findings are robust to the alternative measures of managerial ability, as well as to various approaches used to address endogeneity including propensity-score matching and a difference-in-differences analysis.

This study provides insight into the impact of managerial ability on earnings quality in an under-studied emerging market. Furthermore, this study broadens the existing literature about the financial consequences of a modern terrorist group, ISIS.

This study examines how bilateral international trade among mandatory International Financial Reporting Standards (IFRS) adopter countries moderates the relation between IFRS adoption and firms’ financial reporting quality.

The authors use data from 2007 to 2015 and focus on publicly listed firms from non-European Union countries that adopted IFRS on a mandatory basis.

The authors find that the interaction between mandatory IFRS adoption and a country’s bilateral trade with other countries using IFRS is negatively and significantly related to accruals-based earnings management, which is an inverse measure of financial reporting quality. This result is driven by firms in less developed countries. The improvement in accounting quality is for firms located in countries that both fully and partially adopt IFRS. The authors also find a significant and negative coefficient for the relation between real earnings management and the interaction between mandatory IFRS adoption and a country’s bilateral trade with other IFRS countries in the post-global financial crisis period.

Overall, the authors’ results are consistent with the notion that the mandatory adoption of IFRS creates a positive externality where firms improve their accounting quality because increased financial statement comparability means that foreign customers and suppliers can monitor the quality of earnings more easily.

This study aims to examine whether the newly available auditor tenure information is associated with non-GAAP earnings, as the recent requirement to disclose the initial year of auditor-client relationship in audit reports may give the impression that longer auditor tenure may be related to lower audit quality.

Using a sample of firm-quarters from 2017 to 2020, the authors conduct both univariate and regression analyses. We use hand-collected data for auditor tenure, SEC comment letters, and non-GAAP variables.

First, the authors find that the likelihood of disclosing non-GAAP earnings monotonically increases with auditor tenure on a univariate basis. Second, auditor tenure is negatively associated with aggressive non-GAAP reporting. Third, the authors document evidence of aggressive reporting in general; that is, items excluded in calculating non-GAAP earnings are associated with future performance. However, the association declines with longer auditor tenure. Finally, the authors report evidence that the likelihood of receiving an SEC comment letter that contains non-GAAP comments decreases with longer auditor tenure.

The results show that regulators need to consider both GAAP and non-GAAP disclosures’ costs and benefits when enacting auditor tenure regulation. Investors can benefit from the findings in evaluating the quality of non-GAAP earnings. The findings are also relevant to the SEC when allocating limited resources in monitoring non-GAAP reporting.

To the best of the authors’ knowledge, this is the first study showing that auditor tenure is associated with the quality of non-GAAP earnings. Given that financial reporting quality should be understood as a comprehensive system comprising both mandatory and voluntary disclosures, this study complements the literature that examines the effect of auditor tenure on financial reporting quality using GAAP reporting.