The Financial Reporting Quality Effect on European Firm Performance

26 Pages Posted: 2 Mar 2014

See all articles by Cláudia Lopes

Cláudia Lopes

Institute of Accounting and Administration of Porto (ISCAP)

António Cerqueira

Universidade do Porto - Faculdade de Economia (FEP)

Elisio Brandao

Universidade do Porto - Faculdade de Economia (FEP)

Date Written: November 23, 2012

Abstract

This paper analyses whether accounting quality produces any impact on firm performance using only accounting data: the abnormal accruals methodology to evaluate accounting quality and ROA to determine firm performance. This is important because accounting information guides investment decisions (Bradshaw et al., 2004 and Verdi, 2006). For 17 European countries, findings confirm the mechanical relationship between accruals and accounting measures of performance: income increasing abnormal accruals, which mean decreasing accounting quality, will increase ROA and vice-versa. In addition, the lag effect is analysed, as per Chan et al. (2004). When current performance is compared with the abnormal accruals of the previous year, results suggest that the reverse effect does not occur for two consecutive years.

Keywords: Accounting quality; firm performance; abnormal accruals

JEL Classification: M41

Suggested Citation

Lopes, Cláudia and Cerqueira, António and Brandão, Elísio Fernando Moreira, The Financial Reporting Quality Effect on European Firm Performance (November 23, 2012). Available at SSRN: https://ssrn.com/abstract=2179994 or http://dx.doi.org/10.2139/ssrn.2179994

Cláudia Lopes (Contact Author)

Institute of Accounting and Administration of Porto (ISCAP) ( email )

Portugal

António Cerqueira

Universidade do Porto - Faculdade de Economia (FEP) ( email )

Rua Roberto Frias
s/n
Porto, 4200-464
Portugal

Elísio Fernando Moreira Brandão

Universidade do Porto - Faculdade de Economia (FEP) ( email )

Rua Roberto Frias
s/n
Porto, 4200-464
Portugal

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