The Interaction Impact of Accruals Quality and Corporate Governance Quality on Performance Variability

Document Type : Research Paper


1 Assistant Prof., Department of Accounting, Faculty of Social Sciences and Economics, Alzahra University, Tehran, Iran.

2 MSc., Department of Accounting, Faculty of Social Sciences and Economics, Alzahra University, Tehran, Iran.


Objective: As prior studies consequences, accruals quality and corporate governance are two important factors that can affect on firms performance significantly. Establishing corporate governance and increasing the quality of that, as one of the benchmarks to measure the performance of the firms, will lead to decrease of agency expenses and so can improve the performance of the firm and subsequently can reduce its volatility. On the other hand, investigating the quality of accruals as one of the main factors affecting the quality of accounting profit that is considered by investors, can also lead to better company performance as well as enhancing investor satisfaction and maintaining the reliability and credibility of the companies. Thus, the purpose of the present study is to investigate the relationship between accruals quality and corporate governance quality with performance variability of the firm and the impact of corporate governance quality on the relationship between accruals quality and performance variability of the firm. Thus, in this study, three hypothesis are tested.
Methods: In this research, two key elements in corporate governance, namely, institutional investors, which enhance information transparency and thus reduce information asymmetry, as well as the characteristics of board members that can help reduce the conflict of interest between shareholders and management, have been studied. For this purpose, the model of Francis et al (2005) was used to measure the accruals quality and the quality of corporate governance and measured by assessing the institutional shareholder ownership, board independence, and the use of financial and accounting experts in the board of directors. In order to calculate the volatility of firm performance, the standard deviation of return on assets was used. Thus, Three hyposeses have been designed and tested using the data of a sample from listed companies in Tehran Stock Exchange during the period 2011 to 2019.
Results: According to the findings of this study, accruals quality and corporate governance quality have a significant negative relationship with corporate performance variability. Also, the quality of corporate governance exacerbates the negative relationship between accruals quality and corporateperformance variability.
Conclusion: Due to the abnormal fluctuations in corporate performance which can reflect the unfavorable status of the company in different aspects, and since enhancing corporate governance and accruals quality helps to improve corporate performance, it can generally be concluded that increase in the quality of corporate governance and the quality of accruals will reduce the variability of the firm's performance as one of the determinants of investor risk.


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