The Effect of Financial Crisis on Earnings Quality

Document Type : Research Paper

Authors

1 Assistant Prof, Department of Accounting, Semnan University, Semnan, Iran

2 Instructor, Department of Accounting, Semnan University, Semnan, Iran

3 MSc. Student in Accounting, Semnan University, Semnan, Iran

Abstract

The main purpose of current research is to determine the effect of financial crisis on earnings quality. In this study, earnings quality was measured by using three earnings persistence, earnings predictability and accruals quality. The measure of financial crisis in a company is to have at least one of three criteria: three consecutive years of losses (operating loss, net loss or retained), reduction in distributed dividends of each year relative to the previous year by more than 40 percent, and article 141 of the commercial code be applicable to studied companies study. In current study, we use a sample of 97 firms listed in the Tehran Stock Exchange during the period 2002 to 2015. The results of multiple regression model and panel data with fixed effects, showed that in 95 percent of confidence level, financial crisis has a significant negative effect on the earnings persistence and a significant positive effect on the earnings predictability. Also, there was not found a significant relationship between financial crisis and discretionary

Keywords

References

Accounting Standards Committee. (2001). Accounting Standard No. 2: Cash Flow Statements. www.iacpa.ir
Aflatooni, A. & Khazaei, M. (2016). The Effect of AQ and expose on the inefficiency of investment in human resources. Journal of The Iranian Accounting and Auditing Review, 23 (3), 269-288. (in Persian)
Ahmadi Moghadam, M. (2015). The relationship between restrictions on financing, financing decisions and risk free cash flow with earnings management. MS Thesis Accounting,Semnan University. (in Persian)
Ahmadpour, A. & Montazeri, H. (2011). Type of earnings management and the impact of company size, ownership structure and corporate governance on it. Accounting advances, 3 (2), 1-35. (in Persian)
Anderson, N. L. & Lenos T., (2007). "Managerial discretion in distressed firms", The British Accounting Review. 39(4), PP. 323–346.
Biddle, G.C., Mary, L.M. & Song, F.M. (2010). Accounting conservatism and bankruptcy risk, Social Science Electronic Publishing, Inc. Available in: www.ssrn.com.
Charitou, A., Lambertides, N. & Trigeorgis, L. (2007). Managerial discretion in distressed firms. The British Accounting Review, 39(4), 323–346.
Dastgir, M., Hossein Zadeh, A., Khodadadi, V., Vaez, S. A., (2012). Earning quality in failed firms. Journal of Financial Accounting Research, 4(1), 1-16. (in Persian)
Delkhosh, M. & Malek, Z., (2016). The role of accruals current and non-current operating activities in anticipation of the return on equity (companies listed on Tehran Stock Exchange). Journal of Accounting and Management, 2(25), 75-87. (in Persian)
Ebrahimi Kordler, A. & Javani Ghalandari, M. (2016). The effect of auditor expertise on earnings quality and stock price synchronicity. Journal of The Iranian Accounting and Auditing Review, 23(2) 137-154. (in Persian)
Etemadi, H., Abduli, L. (2015). Earning smoothing and stock price performance in the financial crisis. Journal of Financial Accounting, 7(25), 1-28.
(in Persian)
Filip, A., Raffournier, B. (2012). The impact of the 2008–2009 financial crises on earnings management: The European evidence. In: Illinois International. Journal of Accounting Symposium, Ontario-Canada, July 5–7. Available in: https://business. illinois.edu /Zimmerman /wp-content/uploads/sites/56/2015/ 08/023-Filip.pdf
Francis, J., Lafond, R., Olsson, P. & Schipper, K. (2004). Cost of Capital and Earnings Attributes. The Accounting Review, 79(4), 967-1010.
Garcia Lara, J., Garcia Osma, B. & Neophytou, E. (2009). Earning quality in ex-post failed firm. Accounting and Business Research, 39 (2), 119-138.
Iatridis, G. E. (2011). Accounting disclosures, accounting quality and conditional and unconditional conservatism. International Review of Financial Analysis, 20(2), 88-102.
Jamalian Pour, M., Saghafi, A. (2013). Accruals unexpected deviation of earnings persistence and financial crisis. Journal of Accounting, 4 (12), 7-33. (in Persian)
Jantadej, P. (2006). Using the Combination of Cash Flow Components to Predict Finance Distress. Ph.D. Thesis. The Graduate College at the University of Nebraska.
Khoshtinat, M, Akbari, M., (2008). Evaluation of the variables affecting the predictive validity profit by management. Journal of Accounting empirical studies, 5(19), 21-49. (in Persian)
Kormedi, R., Lipe, R. (1987). Earnings innovations, earnings persistence and stock returns. Journal of  Business, 60 (3), 323–345.
Kothari, S.P., Leone, A.J. & Wasley, C.E. (2005). Performance matched discretionary accrual measures. Journal of Accounting Economics, 39 (1), 163–197.
Monem R.M. & Farshadfar, S. (2007). Has earning quality declined overtime? Available in: www.accg.mq.edu.au/Accg_docs/ pdf/ seminar_papers/2007E, Quality.
Moradzadefar, M., Ruhi, A. & Azeri, V. (2013). The impact of financial distress on Accrual Quality, Journal of Financial Accounting, 5(18), 103-129. (in Persian)
Musavi Shiri, S. M., Pishvani, F. & Khalat Bari, H. (2016). Evaluation of earnings management at different levels of conservatism and institutional investors using Benford's Law. Journal of The Iranian Accounting and Auditing Review, 23(2), 213-234. (in Persian)
Persakis, A., Iatridis, G.E. (2015). Earnings quality under financial crisis: A global empirical investigation. Journal of Multinational Financial Management, 30, 1–35.
Rosner, R. L. (2003). Earnings manipulation in failing firms. Contemporary Accounting Research, 20 (2), 361- 408.
Smith, M., Kestel, J. & Robinson, P. (2001). Economic recession, corporate distress and income increasing accounting policy Choice, Accounting Forum, 25(4), 335-352.
Zarif- fard, A. (1999). Identify and analyze the factors associated with economic evaluation of the quality of the firm's profits. Accounting PhD Thesis, Faculty of Tehran University Management. (in Persian)
Accounting and Auditing Review
Volume 23, Issue 4
2016
Pages 415-434

Files

Share

How to cite

Statistics