Understanding earnings quality: A review of the proxies, their determinants and their consequences

Understanding earnings quality: A review of the proxies, their determinants and their consequences Researchers have used various measures as indications of “earnings quality” including persistence, accruals, smoothness, timeliness, loss avoidance, investor responsiveness, and external indicators such as restatements and SEC enforcement releases. For each measure, we discuss causes of variation in the measure as well as consequences. We reach no single conclusion on what earnings quality is because “quality” is contingent on the decision context. We also point out that the “quality” of earnings is a function of the firm’s fundamental performance. The contribution of a firm’s fundamental performance to its earnings quality is suggested as one area for future work. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

Understanding earnings quality: A review of the proxies, their determinants and their consequences

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Publisher
Elsevier
Copyright
Copyright © 2010 Elsevier B.V.
ISSN
0165-4101
D.O.I.
10.1016/j.jacceco.2010.09.001
Publisher site
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Abstract

Researchers have used various measures as indications of “earnings quality” including persistence, accruals, smoothness, timeliness, loss avoidance, investor responsiveness, and external indicators such as restatements and SEC enforcement releases. For each measure, we discuss causes of variation in the measure as well as consequences. We reach no single conclusion on what earnings quality is because “quality” is contingent on the decision context. We also point out that the “quality” of earnings is a function of the firm’s fundamental performance. The contribution of a firm’s fundamental performance to its earnings quality is suggested as one area for future work.

Journal

Journal of Accounting and EconomicsElsevier

Published: Dec 1, 2010

References

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