A1 Journal article (refereed), original research

Determinants of the quality of disclosed earnings and value relevance across transitional Europe

LUT Authors / Editors

Publication Details
Authors: Ahmed Sheraz
Publication year: 2015
Language: English
Related Journal or Series Information: Journal of Accounting in Emerging Economies
Volume number: 5
Issue number: 3
Start page: 325
End page: 349
JUFO-Level of this publication: 1
Open Access: Not an Open Access publication


Purpose - Earlier studies have found that the country characteristics play important role in measuring the corporate transparency. The purpose of this paper is to examine whether the firm-level determinants play an important role in corporate transparency measured as the quality of disclosed earnings across transitional Europe and what role an overall transparency measured by the Corruption Perception Index plays in it. This paper further tests if the market reacts similarly to discretionary and non-discretionary components of earnings across different groups of countries with respect to transparency.

Design/methodology/approach - The financial and ownership data of listed companies in ten European countries is obtained from Amadeus. The transparency ratings are obtained from Transparency International. The sample consists of a panel of 2001 listed companies and modified Jones model of Dechow et al. (1995) is used to measure the quality of earnings.

Findings - This paper shows that the firm-level determinants (except firm size) of the quality of earnings are different among different groups made on the basis of transparency ratings. However, the determinants of the quality of earnings are not different within each group. The ownership structure of companies plays important role in determining the quality of earnings in most transparent countries whereas financial factors play significant role in least transparent countries. The markets respond positively to earnings quality in most transparent group of countries.

Research limitations/implications - The results of this study provide interesting basis for future research on economic and social integration of Europe. Although the policy makers are trying to integrate the countries through common Laws and decrees but examining the firm-level factors such as size, growth and ownership are still important. The regulators should address the issue of corporate transparency in Europe by looking at the importance of these factors with respect to overall transparency.

Originality/value - This study extends the knowledge, not only for academicians and investors but for policy makers as well. This study re-emphasizes the role of country-level transparency and firm-level determinants of the corporate transparency within Europe.

Last updated on 2017-22-03 at 14:16