The Relation of Earnings Quality to Accounting Conservatism
##plugins.themes.bootstrap3.article.main##
##plugins.themes.bootstrap3.article.sidebar##
Published
Sep 1, 2012
Abstract
The aim of this article is to examine the relationship between accounting conservatism andearnings quality. Data were collected from 50 industrial corporations listed in AmmanStock Exchange (ASE) between 2004-2009. Hypotheses were tested using Ordinary LeastSquares (OLS) and Binary Logistic under Pooled Regression. The findings revealed that thelevel of conservatism was low in such companies, but earnings quality was reasonable. Thestudy found that there was no variance between levels of earnings quality of the Jordanianindustrial corporations, due to the disparity of the level of conservatism in their financialreports.
Metrics
Metrics Loading ...
##plugins.themes.bootstrap3.article.details##
Keywords
Earnings QualityAccounting ConservatismIndustrial Corporations
References
• Abdelghany, K. (2005). Measuring the Quality of Earnings. Managerial Auditing Journal. 20(9): 1001-1015.
• Ahmed, A. & Duellman, S. (2007). Accounting Conservatism and Board of Directors Characteristics: An Empirical Analysis, Journal of Accounting and Economics, 43(3): 411-437.
• Al-Sahli, M. (2009). Accounting Conservation in Corporate Financial Reporting in Saudi Arabia: An Empirical Study. Arab Journal of Administrative Sciences, 16 (1), 1-22.
• Al-Sharif, I. (2008). Quality of earnings and their relationship to corporate governance: An Empirical Study on the Industrial Sector Firms Listed at Amman Stock Exchange (Unpublished Ph.D thesis). Arab Academy for Banking and Financial Sciences, Amman, Jordan.
• Altamuro, J., & Beatty, A. (2006). Do Internal Control Reforms Improve Earnings Quality?. Working Paper, www.ssrn.com.
• Ball, R., Kothari S., & Robin A. (2000). The Effect of International Institutional Factors on Properties of Accounting Earnings. Journal of Accounting & Economics, 29(1), 1–51.
• Ball, R., & Shivakumar, L. (2005). Earnings quality in UK private firms: Comparative loss recognition timeliness. Journal of Accounting and Economics, 39(1): 83-128.
• Ball, R., Robin, A., & Sadka, G. (2008). Is Financial Reporting Shaped by Equity Markets or by Debt Markets? An International Study of Timeliness and Conservatism. Review of Accounting Studies, 13(2-3): 168-205.
• Balsam, S., Krishnan, J. & Yang, J. (2003). Auditor Industry Specialization and Earnings Quality. Auditing: A Journal of Practice and Theory. www.ssrn.com.
• Basu, S. (1997). The conservatism principle and the asymmetric timeliness of earnings. Journal of Accounting and Economics, 24(1): 3–37.
• Baxter, P., & Cotter, J. (2009). Audit committees and earnings quality.Accounting and Finance, 49(1): 267-290.
• Beaver, W., & Ryan, S. (2005). Conditional and Unconditional Conservatism: Concepts and Modeling. Review of Accounting Studies, 10(1), 269–309.
• Block, S. (1999). A Study of Financial Analysts: Practice and Theory.Financial Analysts Journal, 55(4): 86-95.
• Chan K., Chan L., Jegadeesh N., & Lakonishok J. (2006). Earnings Quality and Stock Returns. Journal of Business, 79 (3): 1041-1082.
• Dechow, P. & Dichev, I. (2002). The Quality of Accruals and Earnings: The Role of Accrual Estimation Errors. Accounting Review, 77(4), 35-59.
• Dechow P., Sloan R., & Sweeney A. (1995). Detecting Earnings Management. The Accounting Review, 70 (2): 193-225.
• Dechow, P. & Dichev, I. (2002). The Quality of Accruals and Earnings: the Role of Accrual Estimation Errors. Accounting Review, 77(September): 35-59.
• Dechow, P., & Schrand, C. (2004). Earnings Quality. The Research Foundation of CFA Institute.
• Farinha, J. & Moreira, A. (2007). Dividends and Earnings Quality: The Missing Link? Working Paper, University of Porto.
• Francis, J., LaFond, R. & Schipper, K. (2004). The Market Pricing of Earnings Quality. www.ssrn.com.
• Gigler, F., Kanodia, C., & Sapra, H. (2009). Accounting Conservatism and the Efficiency of Debt Contracts. Journal of Accounting Research, 47(3): 767-797.
• Givoly, D., & Hayn, C. (2000). The changing time-series properties of earnings, cash flows and accruals: Has financial reporting become more conservative? Journal of Accounting and Economics, 29(3): 287-320.
• Givoly, D., Hayn, C., & Katz, S. (2010). Does Public Ownership of Equity Improve Earnings Quality? The Accounting Review, 85(1): 195-225.
• Hamdan, A. (2012). Factors Affecting Accounting Conservatism when Preparing Corporate Financial Reports: Evidence from Jordan. Jordan Journal of Business Administration, 8(1), 22-41.
• Hamdan, A. (2011). The Impact of Accounting Conservatism on the Enhancement of the Quality of Financial Reporting: an empirical study from the Jordanian industrial corporations. Dirasat of Administrative Sciences, 38(2), 415-433.
• Hamdan, A., & Abu Ijela, I. (2012). Auditing Quality in Jordan and its Impact on Earnings Management and Earnings Quality. The Arab Journal of Accounting. 15(1), 25-48.
• Hamdan, A., Mushtaha, S. & Al-Sartawi, A. (2013). The Audit Committee Characteristics and Earnings Quality: evidence from Jordan.The Australasian Accounting Business and Finance Journal, Accepted Paper, 7(4).
• Hamdan, A., & Mushtaha, S. (2011). The Relationship Between Audit Committee Characteristics and Type of Auditor’s Report: An Empirical Study on the Public Shareholding Industrial Companies Listed at Amman Bourse. The Arab Journal of Accounting, 14 (1): 109-167.
• IASB, 2010 Applying International Financial Reporting Standards. Second Edition, Wiley Company, UK.
• Jain, P., & Rezaee, Z. (2004). The Sarbanes-Oxley Act of 2002 and Accounting Conservatism. Working Paper Series, available at: www.ssrn.com
• Jenkins, D., Kane, G., & Velury, U. (2006). Earnings Quality Decline and the Effect of Industry Specialist Auditors: An Analysis of the Late 1990s. Journal of Accounting and Public Policy, 25(1): 71-90.
• Jones, J. (1991). Earnings Management during Import Relief Investigations. Journal of Accounting Research, 29(2): 193-225.
• Lai, L. & Tam H. (2007). Independent directors and the propensity to smooth earnings: A study of corporate governance in China. The Business Review, 7(1), 328-335.
• Labo, G., & Zhou, J. (2006). Did conservatism in financial reporting increase after the Sarbanes-Oxley Act? Initial evidence. Accounting Horizons, 20(1): 57–74.
• LaFond, R., & Roychowdhury, S. (2008). Managerial Ownership and Accounting Conservatism. Journal of Accounting Research, 46 (1), 101-135.
• Mushtaha, S. (2008). The Impact of Audit Committee Characteristics on the Enhancement of the Quality of Financial Reporting: An Empirical Study on the Public Shareholding Industrial Companies Listed at Amman Bourse. Arab Academy for Banking and Financial Sciences (Unpublished dissertation).
• Ohlson, J., & Feltham, J. (1995). Valuation and clean surplus accounting for operating and financial activities. Contemporary Accounting Research, 11(2): 689–731.
• Paprocki, C., & Stone, M. (2004). Is the Quality of Critical Accounting Policy Disclosures Lower for Companies with High Information Asymmetry. Available at: www.ssrn.com
• Penman, S., & Zhang, X. (2002). Accounting Conservatism, the Quality of Earnings, and Stock Returns. The Accounting Review, 77(2): 1-33.
• Qaraqeesh, S. (2009). The Effect of Audit Committee Characteristics on Earnings Quality An Empirical Study on the Industrial Sector Firms Listed at Amman Stock Exchange. Arab Academy for Banking and Financial Sciences (Unpublished dissertation).
• Richardson, S., Sloan, R., Soliman, M., & Tuna, I. (2005). Accrual Reliability, Earnings Persistence and Stock Prices, Journal of Accounting and Economics, 39 (3): 473-485.
• Saleh, N., Iskandar, T., & Rahmat, M. (2007). Audit Committee Characteristics and Earnings Management: Evidence from Malaysia.Asian Review of Accounting, 15(2), 147-163.
• Schipper, K. (1989). Commentary on Earnings Management. Accounting Horizons, 36(1): 91-102.
• Schipper, K., & Vincent, L. (2003). Earnings Quality. Accounting Horizons, Supplement, 97-110.
• Shockley, R. (1982). Perception of Audit Independence: A conceptual Model. Journal of Accounting, Auditing & Finance, 5(1): 126-143.
• Sloan, R. (1996). Do stock prices fully reflect information in accruals and cash flows about future earnings? The Accounting Review, 71 (3): 289–315.
• Teitel, K., & Machuga, S. (2010). The Interaction of Audit Firm Quality and the Mexican Code Of Best Corporate Practices On Earnings Quality.Review of Business Research, 10(1): 32-40.
• Wang Bing. (2007). Did independent director supervise: A study from the angle of earnings quality of listed Chinese companies. Finance Research, (1), 109-121.
• Watts, R. (2003a). Conservatism in Accounting Part I: Explanations and Implications. Accounting Horizons, 17(1), 207–221.
• Watts, R. (2003b). Conservatism in Accounting Part II: Evidence and Research Opportunities. Accounting Horizons, 17(2), 287–301.
• Watts, R., & Zimmerman, J. (1983). Agency Problems, Auditing and the Theory of the Firm: Some Evidence, Journal of Law and Economics, Vol. XXVI, Oct.
• Yaseen, M. (2008). Measure the level of Conservatism in Accounting light of Corporate Governance and its impact on the Disclosure Quality of the Financial Statements of the Jordanian Commercial Banks. Arab Academy for Banking and Financial Sciences (Unpublished dissertation).
• Ahmed, A. & Duellman, S. (2007). Accounting Conservatism and Board of Directors Characteristics: An Empirical Analysis, Journal of Accounting and Economics, 43(3): 411-437.
• Al-Sahli, M. (2009). Accounting Conservation in Corporate Financial Reporting in Saudi Arabia: An Empirical Study. Arab Journal of Administrative Sciences, 16 (1), 1-22.
• Al-Sharif, I. (2008). Quality of earnings and their relationship to corporate governance: An Empirical Study on the Industrial Sector Firms Listed at Amman Stock Exchange (Unpublished Ph.D thesis). Arab Academy for Banking and Financial Sciences, Amman, Jordan.
• Altamuro, J., & Beatty, A. (2006). Do Internal Control Reforms Improve Earnings Quality?. Working Paper, www.ssrn.com.
• Ball, R., Kothari S., & Robin A. (2000). The Effect of International Institutional Factors on Properties of Accounting Earnings. Journal of Accounting & Economics, 29(1), 1–51.
• Ball, R., & Shivakumar, L. (2005). Earnings quality in UK private firms: Comparative loss recognition timeliness. Journal of Accounting and Economics, 39(1): 83-128.
• Ball, R., Robin, A., & Sadka, G. (2008). Is Financial Reporting Shaped by Equity Markets or by Debt Markets? An International Study of Timeliness and Conservatism. Review of Accounting Studies, 13(2-3): 168-205.
• Balsam, S., Krishnan, J. & Yang, J. (2003). Auditor Industry Specialization and Earnings Quality. Auditing: A Journal of Practice and Theory. www.ssrn.com.
• Basu, S. (1997). The conservatism principle and the asymmetric timeliness of earnings. Journal of Accounting and Economics, 24(1): 3–37.
• Baxter, P., & Cotter, J. (2009). Audit committees and earnings quality.Accounting and Finance, 49(1): 267-290.
• Beaver, W., & Ryan, S. (2005). Conditional and Unconditional Conservatism: Concepts and Modeling. Review of Accounting Studies, 10(1), 269–309.
• Block, S. (1999). A Study of Financial Analysts: Practice and Theory.Financial Analysts Journal, 55(4): 86-95.
• Chan K., Chan L., Jegadeesh N., & Lakonishok J. (2006). Earnings Quality and Stock Returns. Journal of Business, 79 (3): 1041-1082.
• Dechow, P. & Dichev, I. (2002). The Quality of Accruals and Earnings: The Role of Accrual Estimation Errors. Accounting Review, 77(4), 35-59.
• Dechow P., Sloan R., & Sweeney A. (1995). Detecting Earnings Management. The Accounting Review, 70 (2): 193-225.
• Dechow, P. & Dichev, I. (2002). The Quality of Accruals and Earnings: the Role of Accrual Estimation Errors. Accounting Review, 77(September): 35-59.
• Dechow, P., & Schrand, C. (2004). Earnings Quality. The Research Foundation of CFA Institute.
• Farinha, J. & Moreira, A. (2007). Dividends and Earnings Quality: The Missing Link? Working Paper, University of Porto.
• Francis, J., LaFond, R. & Schipper, K. (2004). The Market Pricing of Earnings Quality. www.ssrn.com.
• Gigler, F., Kanodia, C., & Sapra, H. (2009). Accounting Conservatism and the Efficiency of Debt Contracts. Journal of Accounting Research, 47(3): 767-797.
• Givoly, D., & Hayn, C. (2000). The changing time-series properties of earnings, cash flows and accruals: Has financial reporting become more conservative? Journal of Accounting and Economics, 29(3): 287-320.
• Givoly, D., Hayn, C., & Katz, S. (2010). Does Public Ownership of Equity Improve Earnings Quality? The Accounting Review, 85(1): 195-225.
• Hamdan, A. (2012). Factors Affecting Accounting Conservatism when Preparing Corporate Financial Reports: Evidence from Jordan. Jordan Journal of Business Administration, 8(1), 22-41.
• Hamdan, A. (2011). The Impact of Accounting Conservatism on the Enhancement of the Quality of Financial Reporting: an empirical study from the Jordanian industrial corporations. Dirasat of Administrative Sciences, 38(2), 415-433.
• Hamdan, A., & Abu Ijela, I. (2012). Auditing Quality in Jordan and its Impact on Earnings Management and Earnings Quality. The Arab Journal of Accounting. 15(1), 25-48.
• Hamdan, A., Mushtaha, S. & Al-Sartawi, A. (2013). The Audit Committee Characteristics and Earnings Quality: evidence from Jordan.The Australasian Accounting Business and Finance Journal, Accepted Paper, 7(4).
• Hamdan, A., & Mushtaha, S. (2011). The Relationship Between Audit Committee Characteristics and Type of Auditor’s Report: An Empirical Study on the Public Shareholding Industrial Companies Listed at Amman Bourse. The Arab Journal of Accounting, 14 (1): 109-167.
• IASB, 2010 Applying International Financial Reporting Standards. Second Edition, Wiley Company, UK.
• Jain, P., & Rezaee, Z. (2004). The Sarbanes-Oxley Act of 2002 and Accounting Conservatism. Working Paper Series, available at: www.ssrn.com
• Jenkins, D., Kane, G., & Velury, U. (2006). Earnings Quality Decline and the Effect of Industry Specialist Auditors: An Analysis of the Late 1990s. Journal of Accounting and Public Policy, 25(1): 71-90.
• Jones, J. (1991). Earnings Management during Import Relief Investigations. Journal of Accounting Research, 29(2): 193-225.
• Lai, L. & Tam H. (2007). Independent directors and the propensity to smooth earnings: A study of corporate governance in China. The Business Review, 7(1), 328-335.
• Labo, G., & Zhou, J. (2006). Did conservatism in financial reporting increase after the Sarbanes-Oxley Act? Initial evidence. Accounting Horizons, 20(1): 57–74.
• LaFond, R., & Roychowdhury, S. (2008). Managerial Ownership and Accounting Conservatism. Journal of Accounting Research, 46 (1), 101-135.
• Mushtaha, S. (2008). The Impact of Audit Committee Characteristics on the Enhancement of the Quality of Financial Reporting: An Empirical Study on the Public Shareholding Industrial Companies Listed at Amman Bourse. Arab Academy for Banking and Financial Sciences (Unpublished dissertation).
• Ohlson, J., & Feltham, J. (1995). Valuation and clean surplus accounting for operating and financial activities. Contemporary Accounting Research, 11(2): 689–731.
• Paprocki, C., & Stone, M. (2004). Is the Quality of Critical Accounting Policy Disclosures Lower for Companies with High Information Asymmetry. Available at: www.ssrn.com
• Penman, S., & Zhang, X. (2002). Accounting Conservatism, the Quality of Earnings, and Stock Returns. The Accounting Review, 77(2): 1-33.
• Qaraqeesh, S. (2009). The Effect of Audit Committee Characteristics on Earnings Quality An Empirical Study on the Industrial Sector Firms Listed at Amman Stock Exchange. Arab Academy for Banking and Financial Sciences (Unpublished dissertation).
• Richardson, S., Sloan, R., Soliman, M., & Tuna, I. (2005). Accrual Reliability, Earnings Persistence and Stock Prices, Journal of Accounting and Economics, 39 (3): 473-485.
• Saleh, N., Iskandar, T., & Rahmat, M. (2007). Audit Committee Characteristics and Earnings Management: Evidence from Malaysia.Asian Review of Accounting, 15(2), 147-163.
• Schipper, K. (1989). Commentary on Earnings Management. Accounting Horizons, 36(1): 91-102.
• Schipper, K., & Vincent, L. (2003). Earnings Quality. Accounting Horizons, Supplement, 97-110.
• Shockley, R. (1982). Perception of Audit Independence: A conceptual Model. Journal of Accounting, Auditing & Finance, 5(1): 126-143.
• Sloan, R. (1996). Do stock prices fully reflect information in accruals and cash flows about future earnings? The Accounting Review, 71 (3): 289–315.
• Teitel, K., & Machuga, S. (2010). The Interaction of Audit Firm Quality and the Mexican Code Of Best Corporate Practices On Earnings Quality.Review of Business Research, 10(1): 32-40.
• Wang Bing. (2007). Did independent director supervise: A study from the angle of earnings quality of listed Chinese companies. Finance Research, (1), 109-121.
• Watts, R. (2003a). Conservatism in Accounting Part I: Explanations and Implications. Accounting Horizons, 17(1), 207–221.
• Watts, R. (2003b). Conservatism in Accounting Part II: Evidence and Research Opportunities. Accounting Horizons, 17(2), 287–301.
• Watts, R., & Zimmerman, J. (1983). Agency Problems, Auditing and the Theory of the Firm: Some Evidence, Journal of Law and Economics, Vol. XXVI, Oct.
• Yaseen, M. (2008). Measure the level of Conservatism in Accounting light of Corporate Governance and its impact on the Disclosure Quality of the Financial Statements of the Jordanian Commercial Banks. Arab Academy for Banking and Financial Sciences (Unpublished dissertation).
How to Cite
Hamdan, Allam Mohammed Mousa. 2012. “The Relation of Earnings Quality to Accounting Conservatism”. Studies in Business and Economics 16 (2). https://doi.org/10.29117/sbe.2012.0072.
Section
Articles