Earnings Quality with Reputation and Performance

Abstract

Article History JEL Classification:C51, G39, L25, M41.The quality of earnings is a potential driver of profit growth. However, it is regarded as a consequence of corporate reputation. Earnings quality is also suggested as a mediator intervening in the association between corporate reputation and corporate performance. This research employs the quantile regression to investigate the linkage between earnings quality and corporate performance. Then, it uses an indirect technique to analyze the mediating effect of earnings quality on the relationship between corporate reputation and corporate performance. The results provide statistical evidence on the comprehensive relationships among earnings quality, corporate reputation and corporate performance. The relationship between earnings quality and corporate performance is statistically supported in a more overall picture at different levels of corporate performance. Furthermore, this research offers statistical evidence on the mediating role of earnings quality in the impact of corporate reputation on corporate performance. The findings are expected to provide business managers with an insight into the complex links among earnings quality, corporate reputation and corporate performance, which will facilitate their decisions on the delivery level of good financial reports as well as on the maintenance of their corporate reputation to the extent that their company can obtain superior improved performance. Contribution/ Originality:This study contributes to the existing literature by providing statistical evidence on the mediating role of earnings quality in the effect of corporate reputation on corporate performance and it is the first to use the quantile regression to investigate the different effects of earnings quality on corporate performance. RESEARCH BACKGROUND AND PURPOSESeveral financial scandals, such as the major scandals of Enron and WorldCom, direct the attention of investors, researchers and also those concerned to the quality of financial information as well as the quality of reported earnings. Studies have begun to investigate the factors related to earnings quality released by publicly listed companies. Earnings quality is reported by previous researchers as being greatly essential to financial information users, practitioners and regulators as well as accounting researchers, because the earnings of companies are generally supposed to be an important information component offered in financial statements (Lev, 1989; Boonlert-U-Thai et al., 2006). If earnings quality is too low, users of financial statements can suffer negative effects, since poor earnings quality may enable investors to misallocate their money; therefore, they can obtain improper

The Effect of Earnings Quality on Financial Performance in Indonesia : is the State-Owned Bank better than Private Bank?

“…Furthermore, Li (2014) mentioned that earnings quality is one of the important indicators for accurately evaluating the value of a company. Huynh (2018), analyze the connection between earnings quality and financial performance, and observe in 2012 to 2015,194 firm-year of Vietnamese publicly listed companies list voted by Forbes Vietnam. Huynh (2018) emphasize that earnings quality has a sigificant effect on financial performance.…”

Reputation to the vicious circle of earnings quality and financial performance

“…After numerous financial accounting scandals, such as those of Xerox in 2000 and Enron in 2001 or the most recent ones of Banco Espírito Santo in 2014, Dick Smith in 2016 and British Telecom in 2017, the accuracy and transparency of reported financial accounting statements have been receiving huge attention from the public (see Grasso et al, 2009;Zhatkin et al, 2017;Du & Shen, 2018;Huynh, 2018). Given that accounting standards allow the directors of companies to flexibly practice accounting discretion over disclosed incomes, it is conventional that directors tend to manipulate earnings if there exist large conflicts of interest between them and other stakeholders (Almahrog et al, 2016).…”

“…Economics and Sociology,12(2), 361-375. doi:10.14254/2071-789X.2019/12-2 Previous research has attempted to discover the links among the quality of earnings, most importantly considered, organizational reputation and financial performance (see Huynh, 2018). The manipulation of accounting information, negatively related to earnings quality, was suggested a cause of a company's reputational harm, subsequently leading to a large decrease in its upcoming financial performance (Johnson et al, 2014;Leggett et al, 2016).…”

“…The interplay between the quality of publicly disclosed earnings and financial performance or value has broadly been discussed in previous research (e.g. Latif et al, 2017;Warrad, 2017;Huynh, 2018;Du & Shen, 2018). Those scholars have only focused on the causal interactions from the quality of earnings to financial performance or in the opposite influential direction.…”

“…The first trend of research recommended the quality of earnings as one of the most imperative factors to the financial effectiveness of companies (DeFond & Park, 1997;Charitou et al, 2007;Gaio & Raposo, 2011;Tabassum et al, 2014;Latif et al, 2017;Huynh, 2018). That tendency argued that a higher quality of reported earnings is supposed to allow companies to win public confidence and gain goodwill, so be able to achieve competitive advantages and superior subsequent performance.…”