Discussion of the Quality of Accruals and Earnings: The Role of Accrual Estimation Errors

2002 ◽  
Vol 77 (s-1) ◽  
pp. 61-69 ◽  
Author(s):  
Maureen F. McNichols
Keyword(s):  
Measurement Error ◽  
Earnings Management ◽  
Earnings Quality ◽  
Discretionary Accruals ◽  
Cash Flows ◽  
Future Research ◽  
Estimation Errors ◽  
Empirical Estimates

Dechow and Dichev (2002) model earnings quality as the magnitude of estimation errors in accruals, and provide empirical estimates of this construct based on the relation between accruals and cash flows. I characterize the innovation and limitations in this approach, and provide empirical evidence of measurement error in their empirical specification. I also adapt their model to assess the specification of the Jones' (1991) model and document that this model provides estimates of discretionary accruals that are significantly associated with cash flows, which are likely to be substantially nondiscretionary. I conclude with suggestions for future research on earnings quality and earnings management.

scholarly journals The Quality of Accruals and Earnings: The Role of Accrual Estimation Errors

2002 ◽  
Vol 77 (s-1) ◽  
pp. 35-59 ◽  
Author(s):  
Patricia M. Dechow ◽  
Ilia D. Dichev
Keyword(s):  
Estimation Error ◽  
Cash Flows ◽  
Empirical Measure ◽  
Earnings Persistence ◽  
Working Capital ◽  
Estimation Errors ◽  
Accrual Quality ◽  
Flows Over Time

This paper suggests a new measure of one aspect of the quality of working capital accruals and earnings. One role of accruals is to shift or adjust the recognition of cash flows over time so that the adjusted numbers (earnings) better measure firm performance. However, accruals require assumptions and estimates of future cash flows. We argue that the quality of accruals and earnings is decreasing in the magnitude of estimation error in accruals. We derive an empirical measure of accrual quality as the residuals from firm-specific regressions of changes in working capital on past, present, and future operating cash flows. We document that observable firm characteristics can be used as instruments for accrual quality (e.g., volatility of accruals and volatility of earnings). Finally, we show that our measure of accrual quality is positively related to earnings persistence.

scholarly journals Impact of Macro and Micro Governance Structures on Earnings Management

2021 ◽  
Author(s):  
◽  
Muhammad Nurul Houqe
Keyword(s):  
Earnings Management ◽  
Earnings Quality ◽  
Discretionary Accruals ◽  
Institutional Setting ◽  
Strong Impact ◽  
Legal Enforcement ◽  
Micro Level ◽  
Reported Earnings ◽  
Macro Variables

<p><b>This study examines the macro and micro level determinants of the quality of reported earnings. The prior literature suggests that both micro and macro variables impact on discretionary accruals choice in managing earnings. However, most of the studies on earnings management have been single country studies that have focussed only on micro variables as all firms within the samples examined have been subject to the same interplay of macro economic, legal, cultural and institutional frameworks. This study addresses this gap in the literature by using a sample of 156,906 firm year observations from 63 countries over the period 1998-2007 to examine the role of thirteen micro and macro variables in determining earnings quality.</b></p> <p>The macro variables studied include legal enforcement, political system, and control of corruption, culture and adoption of IFRS. Earnings management is estimated using the modified Jones model (Dechow et al. 1995) in a cross section (DeFond and Jiambalvo 1994; Francis et al. 1998).</p> <p>The results of the study indicate that macro and micro level variables have a strong impact on earnings management behaviour and thus earnings quality. The limits imposed by a country's legal, cultural and institutional setting on managerial discretionary accruals choices, strongly impact the quality of reported earnings. Future research on earnings management should therefore control both micro and macro level variables.</p>

scholarly journals Impact of Macro and Micro Governance Structures on Earnings Management

2021 ◽  
Author(s):  
◽  
Muhammad Nurul Houqe
Keyword(s):  
Earnings Management ◽  
Earnings Quality ◽  
Discretionary Accruals ◽  
Institutional Setting ◽  
Strong Impact ◽  
Legal Enforcement ◽  
Micro Level ◽  
Reported Earnings ◽  
Macro Variables

<p>This study examines the macro and micro level determinants of the quality of reported earnings. The prior literature suggests that both micro and macro variables impact on discretionary accruals choice in managing earnings. However, most of the studies on earnings management have been single country studies that have focussed only on micro variables as all firms within the samples examined have been subject to the same interplay of macro economic, legal, cultural and institutional frameworks. This study addresses this gap in the literature by using a sample of 156,906 firm year observations from 63 countries over the period 1998-2007 to examine the role of thirteen micro and macro variables in determining earnings quality. The macro variables studied include legal enforcement, political system, and control of corruption, culture and adoption of IFRS. Earnings management is estimated using the modified Jones model (Dechow et al. 1995) in a cross section (DeFond and Jiambalvo 1994; Francis et al. 1998). The results of the study indicate that macro and micro level variables have a strong impact on earnings management behaviour and thus earnings quality. The limits imposed by a country's legal, cultural and institutional setting on managerial discretionary accruals choices, strongly impact the quality of reported earnings. Future research on earnings management should therefore control both micro and macro level variables.</p>

scholarly journals Non-Executive Chairman, Audit Quality and Earnings Management

2020 ◽  
Vol 15 (3) ◽  
pp. 50
Author(s):  
Aditi Shams
Keyword(s):  
Earnings Management ◽  
Executive Director ◽  
Audit Quality ◽  
Earnings Quality ◽  
Governance Mechanism ◽  
Jones Model ◽  
Corporate Governance Mechanism ◽  
Total Accrual

The purpose of this paper is twofold, first, it examines the association of non-executive chairman and the quality of financial earnings and second, it examines the role of audit quality and non-executive chairman in earnings quality. This paper uses the modified jones model and the performance adjusted modified Jones model considering two cash flow methods of total accrual and perform regression analysis on the energy sector firms from the year 2010-2012. The study result does not find any significant association of earnings management and non-executive director and audit quality in the Australian context. This finding raises concerns regarding the effectiveness of such a corporate governance mechanism to maximize monitoring over the operation of the firm.

scholarly journals Impact of Macro and Micro Governance Structures on Earnings Management

2021 ◽  
Author(s):  
◽  
Muhammad Nurul Houqe
Keyword(s):  
Earnings Management ◽  
Earnings Quality ◽  
Discretionary Accruals ◽  
Institutional Setting ◽  
Strong Impact ◽  
Legal Enforcement ◽  
Micro Level ◽  
Reported Earnings ◽  
Macro Variables

<p>This study examines the macro and micro level determinants of the quality of reported earnings. The prior literature suggests that both micro and macro variables impact on discretionary accruals choice in managing earnings. However, most of the studies on earnings management have been single country studies that have focussed only on micro variables as all firms within the samples examined have been subject to the same interplay of macro economic, legal, cultural and institutional frameworks. This study addresses this gap in the literature by using a sample of 156,906 firm year observations from 63 countries over the period 1998-2007 to examine the role of thirteen micro and macro variables in determining earnings quality. The macro variables studied include legal enforcement, political system, and control of corruption, culture and adoption of IFRS. Earnings management is estimated using the modified Jones model (Dechow et al. 1995) in a cross section (DeFond and Jiambalvo 1994; Francis et al. 1998). The results of the study indicate that macro and micro level variables have a strong impact on earnings management behaviour and thus earnings quality. The limits imposed by a country's legal, cultural and institutional setting on managerial discretionary accruals choices, strongly impact the quality of reported earnings. Future research on earnings management should therefore control both micro and macro level variables.</p>

scholarly journals Hubungan Corporate Social Responsibility dengan Earnings Quality pada Perusahaan yang Terdaftar di Bursa Efek Indonesia (BEI) Periode 2016-2019

2021 ◽  
Vol 13 (2) ◽  
pp. 1
Author(s):  
Priscillia Puspita Lestari ◽  
Yie Ke Feliana
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Earnings Management ◽  
Stock Exchange ◽  
Earnings Quality ◽  
Discretionary Accruals ◽  
Bottom Line ◽  
Corporate Social ◽  
The Relationship

Abstract Earnings is one of some important things that company stakeholders pay attention to in making decisions related to the company. Therefore, the quality of earnings reported by companies need to be ensured that it accurately reflects tha real conditions of the company. Besides earnings, stakeholders also pay attention to corporate social responsibility activities that has been done by company as the implementation of triple bottom line concept. This study aims to investigate the relationship between corporate social responsibility (CSR) and earnings quality reported by firms. CSR is measured by using the CSRD Index based on 91 GRI criteria, while earnings quality is proxied by accrual earnings management and measured by calculating the discretionary accruals. The research object in this study is all entities listed on the Indonesia Stock Exchange (IDX) in the period of 2016-2019. After selecting companies based on predetermined sample criteria, the totals of sample numbers in this study is 191 companies in 2016-2019. The result of this study prove that there is no significant relationship between CSR and earnings quality. Keywords: corporate social responsibility, earnings quality, earnings management

scholarly journals Impact of Macro and Micro Governance Structures on Earnings Management

2021 ◽  
Author(s):  
◽  
Muhammad Nurul Houqe
Keyword(s):  
Earnings Management ◽  
Earnings Quality ◽  
Discretionary Accruals ◽  
Institutional Setting ◽  
Strong Impact ◽  
Legal Enforcement ◽  
Micro Level ◽  
Reported Earnings ◽  
Macro Variables

<p><b>This study examines the macro and micro level determinants of the quality of reported earnings. The prior literature suggests that both micro and macro variables impact on discretionary accruals choice in managing earnings. However, most of the studies on earnings management have been single country studies that have focussed only on micro variables as all firms within the samples examined have been subject to the same interplay of macro economic, legal, cultural and institutional frameworks. This study addresses this gap in the literature by using a sample of 156,906 firm year observations from 63 countries over the period 1998-2007 to examine the role of thirteen micro and macro variables in determining earnings quality.</b></p> <p>The macro variables studied include legal enforcement, political system, and control of corruption, culture and adoption of IFRS. Earnings management is estimated using the modified Jones model (Dechow et al. 1995) in a cross section (DeFond and Jiambalvo 1994; Francis et al. 1998).</p> <p>The results of the study indicate that macro and micro level variables have a strong impact on earnings management behaviour and thus earnings quality. The limits imposed by a country's legal, cultural and institutional setting on managerial discretionary accruals choices, strongly impact the quality of reported earnings. Future research on earnings management should therefore control both micro and macro level variables.</p>

Are Dividends Associated with the Quality of Earnings?

2011 ◽  
Vol 25 (1) ◽  
pp. 183-205 ◽  
Author(s):  
Yen H. Tong ◽  
Bin Miao
Keyword(s):  
Standard Deviation ◽  
Earnings Quality ◽  
Positive Association ◽  
Absolute Magnitude ◽  
Discretionary Accruals ◽  
Cash Flows ◽  
Lower Standard Deviation ◽  
Lower Standard

SYNOPSIS: We examine whether dividend paying status is associated with the quality of earnings. We find dividend paying status is associated with (1) lower absolute values of discretionary accruals; (2) lower standard deviation and absolute magnitude of the errors associated with the mapping of accruals into cash flows; and (3) more value relevant earnings. We also find evidence that the positive association between dividend paying status and earnings quality is stronger (weaker) when the size of dividend payouts is larger (smaller). Overall, our results suggest dividend paying status is indicative of firms’ earnings quality.

Dietary Modifications in Fissure-in-ano: A Qualitative Study Based on Persian Medicine

2020 ◽  
Vol 16 (6) ◽  
pp. 860-865
Author(s):  
Sedigheh Tavakoli-Dastjerdi ◽  
Mandana Tavakkoli-Kakhki ◽  
Ali R. Derakhshan ◽  
Azam Teimouri ◽  
Malihe Motavasselian
Keyword(s):  
Modern Medicine ◽  
Integrative Approach ◽  
Future Research ◽  
Common Disease ◽  
Fissure In Ano ◽  
High Fiber ◽  
Baked Goods ◽  
Persian Medicine

Background: Anal fissure (AF) is a common disease associated with severe pain and reduced quality of life. Factors related to lifestyle, including diet and bowel habits, play a pivotal role in its pathogenesis. Most of the chronic fissures are not responsive to drugs and more likely to recur. Given the significance of diet in Persian medicine (PM), investigation on physiopathology and appropriate foods can be useful for decreases in AF symptoms and consequences. Objective: This study was intended to evaluate the role of diet in the formation and progression of AF from the perspective of PM. Methods: In this study, the most important resources of PM dating back to thousands of years were reviewed. All these textbooks contained a section on AF, its causes, and treatment. Further analysis was performed on these resources in comparison with databank and resources of modern medicine to develop a food-based strategy for AF management. Results: From the view of PM, the warmth and dryness of anus temperament accounted for AF. Both Persian and modern medicine identified constipation as another cause for AF. Therefore, avoidance from some foods and commercial baked goods was recommended. Both Persian and modern medicine forbad the following foods: potato, cabbage, cauliflower, pasta, beef, fish, and so forth. High fiber and oligo-antigen diets with some limitations have garnered more attention. Conclusion: An integrative approach is recommended employing both Persian and modern medicine for AF. There have been some evidence in this regard, however standardized clinical trials are required for future research.

scholarly journals Heterogeneity in earnings quality between different classes of companies after IFRS adoption: evidence from Brazil

2017 ◽  
Vol 28 (73) ◽  
pp. 113-131
Author(s):  
Roberto Black ◽  
Sílvio Hiroshi Nakao
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Value Relevance ◽  
Earnings Quality ◽  
Economic Incentives ◽  
Net Income ◽  
Accounting Earnings ◽  
Ifrs Adoption ◽  
Before And After

ABSTRACT This paper aims to investigate the existence of heterogeneity in earnings quality between different classes of companies after the adoption of the International Financial Reporting Standards (IFRS). IFRS adoption is generally associated with an increase in the quality of financial statements. However, companies within the same country are likely to have different economic incentives regarding the disclosure of information. Thus, treating companies equally, without considering the related economic incentives, could contaminate earnings quality investigations. The case of Brazil is analyzed, which is a country classified as code-law, in which tax laws determined accounting practice and in which IFRS adoption is mandatory. First, Brazilian companies listed on the São Paulo Stock, Commodities, and Futures Exchange (BM&FBOVESPA) were separated into two classes: companies issuing American Depositary Receipts (ADRs) before IFRS adoption and companies that did not issue ADRs until the adoption of IFRS. Then, this second class of companies was grouped, using cluster analysis, into two different subclasses according to economic incentives. Based on the groups identified, the quality of accounting earnings is tested for each class of the companies before and after IFRS adoption. This paper uses timely recognition of economic events, value relevance of net income, and earnings management as proxies for the quality of accounting earnings. The results indicate that a particular class of companies began showing conditional conservatism, value relevance of net income, and lower earnings management after IFRS adoption. On the other hand, these results were not found for the two other classes of companies.

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