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In this research, we examined the relation between earnings quality and corporate governance including managerial share ownership (MSO) and the number of outside directors (DIR).
The sample data used for the research consisted of financial reporting by companies listed on the Tehran Stock Exchange from 1381-1383 (2002-2004). We used a pooled cross-sectional ordinary least squares regression to evaluate the implications of our data on what sought to test above.
In this research, earnings quality is defined as the extent of earnings persistence, the ability of current earnings to predict future earnings. Although earnings are made up of cash flows and accruals, we argue that earnings persistence is a function of accruals. We adopt a total accruals (TACC) measure of earnings quality.
Our result showed that there isn't a relation between TACC and MSO and DIR (5% level). But hypothesis no.1 is supported in that a significant U shaped relationship between MSO and TACC is observed.
Based on the data obtained from companies traded on the Tehran Stock Exchange, we can conclude that corporate governance mechanisms including outside directors and managerial share ownership don’t have high effective on increasing earning quality.