The role of accrual estimation errors to determine accrual and earnings quality

Darjezi, Javad Izadi Zadeh

doi:10.1108/ijaim-04-2015-0022

Cited by 14 publications

(8 citation statements)

References 34 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…More importantly, our findings are consistent with results reported in previous studies (e.g. Darjezi, 2016; Li et al. , 2014; Dechow and Dichev, 2002).…”

Section: Resultssupporting

confidence: 93%

IFRS experience and earnings quality in the GCC region

Al-Enzy

Monem

Nahar

2022

IJMF

View full text Add to dashboard Cite

PurposeThis 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.Design/methodology/approachThe 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.FindingsThis 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.Research limitations/implicationsThe authors contribute to the IFRS literature in the GCC region, which is in its infancy.Practical implicationsThis 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.Originality/valueThe 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.

show abstract

“…More importantly, our findings are consistent with results reported in previous studies (e.g. Darjezi, 2016; Li et al. , 2014; Dechow and Dichev, 2002).…”

Section: Resultssupporting

confidence: 93%

IFRS experience and earnings quality in the GCC region

Al-Enzy

Monem

Nahar

2022

IJMF

View full text Add to dashboard Cite

show abstract

“…Because of opportunistic motives, the management has a proclivity to share a misleading signal where the target has not been met in the current period (Dichev et al, 2016). Finally, it is under obligation to publish financial reports periodically to spread high-quality accounting information, this positively affects market price movement as a response to investor's perception of the financial reporting quality (Darjezi, 2016). (Stigler 2012) stated that as a government's intervention, the fiscal policy has contributed to its earnings with the authority to fix the tax tariff and regulation.…”

Section: Theoretical Framework and Hypothesesmentioning

confidence: 99%

“…The accounting information on decision usefulness enables the investor to monitor the risk, indicating a better management performance in the future. When the management consistently implements the available regulations, the high financial reporting quality enables the investor to estimate future returns (Darjezi, 2016;Lebert, 2019). High accounting standards minimize opportunistic motives, which is an obstacle in capturing real earnings.…”

Section: Introductionmentioning

confidence: 99%

The Mapping Of Investor Perception On The High Financial Reporting Quality

Siladjaja

Anwar²

2021

Acc. J. Binaniaga

View full text Add to dashboard Cite

This research mapped investor perception on high accounting information quality, particularly the accurate prediction model for future returns. The high financial reporting quality indicates the company's prospective improvement in the future under the right management. This positively affects market price fluctuation, where the investor has minimum distortion on accounting information and low risk. The obedience to accounting standards and tax regulation illustrates actual earnings in reducing agency cost's volatile movement. This study used questionnaires to gather information. The respondents were related parties with dominant influence in investment, specifically 384 samples. Through the structural equation model, the mapping of earnings quality, future market value, and dividend policy played a critical role in minimizing misleading information and improving accounting information quality. The high financial reporting quality indicates the managements' obedience in maximum implementation of regulations with continuous improvements. In this regard, the dividend policy has significantly contributed to the improvement of the earnings quality. The Decision Tree Model was used in mapping investor perception on earnings quality to estimate the high probability of a long or short position for their maximum utility. When the dividend policy is used as a mandatory indirect obligation, the management should provide high accounting information quality.

show abstract

“…Another related literature examines the information contents of past earnings (Izadi Zadeh Darjezi, 2016, Sirait and Veronica Siregar, 2014, Ji et al , 2015, Sun and Al Farooque, 2018), and the correlations between earnings and returns (Haw et al , 2016). The extensive literature on post-earnings-announcements drift suggests that investors and analysts underreact to information in past earnings changes (Bernard and Thomas, 1989; Abarbanell and Bernard, 1992).…”

Section: Related Literature and Hypothesis Developmentmentioning

confidence: 99%

Do management earnings forecasts fully reflect information in past earnings changes?

Gong

Zhou³

2019

IJAIM

View full text Add to dashboard Cite

Purpose It has been widely documented that investors and analysts underreact to information in past earnings changes, a fundamental performance indicator. The purpose of this paper is to examine whether managers’ voluntary disclosure efficiently incorporates information in past earnings changes, whether analysts recognize and fully anticipate the potential inefficiency in management forecasts and whether managers’ potential forecasting inefficiency entirely results from intentional disclosure strategies or at least partly reflects managers’ unintentional information processing biases. Design/methodology/approach Archival data were used to empirically test the relation between management earnings forecast errors and past earnings changes. Findings Results show that managers underreact to past earnings changes when projecting future earnings and analysts recognize, but fail to fully anticipate, the predictable bias associated with past earnings changes in management forecasts. Moreover, analysts appear to underreact more to past earnings changes when management forecasts exhibit greater underestimation of earnings change persistence. Further analyses suggest that the underestimation of earnings change persistence is at least partly attributable to managers’ unintentional information processing bias. Originality/value This study contributes to the voluntary disclosure literature by demonstrating the limitation in the informational value of management forecasts. The findings indicate that the effectiveness of voluntary disclosure in mitigating market mispricing is inherently limited by the inefficiency in management forecasts. This study can help market participants to better use management forecasts to form more accurate earnings expectations. Moreover, our evidence suggests a managerial information processing bias with respect to past earnings changes, which may affect managers' operational, investment or financing decisions.

show abstract

The role of accrual estimation errors to determine accrual and earnings quality

Cited by 14 publications

References 34 publications

IFRS experience and earnings quality in the GCC region

IFRS experience and earnings quality in the GCC region

The Mapping Of Investor Perception On The High Financial Reporting Quality

Do management earnings forecasts fully reflect information in past earnings changes?

Contact Info

Product

Resources

About