Earnings Quality and Foreign Investors in Gulf Cooperation Council Countries

Abstract

This study aims to measure the earnings quality (EQ) in the Gulf Cooperation Council (GCC) countries using a sample of 1827 firm-year observations from 2008 to 2016 by using nine EQ measures. These measures are persistence, predictability, value relevance, earnings response coefficient (ERC), smoothness, earnings surprise, accrual quality, loss recognition timeliness and conservatism. The study also examines the effect of these nine EQ measures on attracting foreign investors. Data are collected from Capital IQ database, and some other data are calculated manually from the capital markets and firms in each country. In this quantitative research, the sample is analysed by using descriptive statistics, correlation, and generalized least squares (GLS) regression to verify the hypotheses and analyse the effect of EQ measures on attracting foreign investors. Findings show distinct effects on attracting foreign investors in different countries. Persistence, predictability, ERC, and accrual quality have a positive effect in Oman, whereas value relevance and ERC have a positive effect in Kuwait. Predictability, accrual quality, ERC, and conservatism negatively affect the Kingdom of Saudi Arabia. Finally, loss recognition timeliness, smoothness, and earnings surprise do not have any effect in all GCC countries.

The effects of boardroom gender diversity and audit quality on financial earnings smoothing in GCC countries: Do government board members moderate the relationship?

“…The same analysis was implemented for the 𝐿𝑂𝐸𝑟𝑆𝑚𝑜 (Higher Quality) smoothing proxy. The R 2 results in Table 8 show that the models have a goodness of fit of 27%, 27%, 21%, and 20%, respectively, which is supported by Al Ani (2021). These results support the earlier findings that the big four international firms and big four local audit firms have a significant positive effect on 𝐿𝑂𝐸𝑟𝑆𝑚𝑜 (Higher Quality) at 1% in all models.…”

“…These examine the complementary or substitutive roles in reducing the agency problem and discouraging FES in the GCC nations. Pseudo R 2 for all models had a good fit for model ( 1) at 16% and model (2) at 24%, which is similar to the findings of Al Ani (2021).…”

“…The average (median) FES (𝐸𝑟𝑆𝑚𝑜) for all samples was 2.61 (1.72), which is quite similar to the results of Shubita (2015) and Al Ani (2021). High FES (𝐻𝐸𝑟𝑆𝑚𝑜) and low FES (𝐿𝑂𝐸𝑟𝑆𝑚𝑜) were exhibited by 77% and 23% of companies, respectively.…”

“…The results in Table 7 show that all the models have a good fit (R 2 ), of 27%, 27%, 21%, and 20%, which supports Al Ani (2021). The independent variables: AQ4 is a dummy variable that is equal to 1 if a big four international firm was appointed and equal to 0 if a local or other firm was appointed instead.…”