Investigating the effect of earnings quality characteristics on information content of annual and interim earnings with a meta-analysis approach

Document Type : Research Paper

Authors

1 Associate Professor of Accounting, Faculty of Economic and administrative sciences, University of Qom, Qom. Iran

2 Associate Professor of Accounting, Faculty of Management and Accounting. College of Farabi.University of Tehran, Qom, Iran.

3 Assistant Professor of Accounting, Faculty of Management and Finance, Khatam University. Tehran. Iran.

4 accounting department, Faculty of Management and Accounting, College of Farabi , University of Tehran, Qom, Iran

Abstract

Introduction
The role of accounting earnings in securities pricing has always been one of the most important questions in accounting research. Research on earnings information content (value relevance of earnings) derived from the work of Ball and Brown (1968) and Beaver (1968) seeks to examine the role that accounting information in general and accounting earnings in particular can play in explaining the behavior of price and return on securities. In general, the results of previous research confirm the value relevance and information content of accounting earnings for investors (strong correlation between earnings, earnings changes and a combination of them with changes in price, return and market value of equity).On the other hand, earnings information content is one of the measures of earnings quality from the perspective of investors and is based on the qualitative characteristics of accounting earnings. In other words, information content (value relevance) measures the usefulness of accounting information from the perspective of investors. From this point of view, the earnings that can better interpret the price change is considered more desirable. The results of Kashanipour et al. (2019) indicate that the measure of earnings informativeness (value relevance or information content of earnings) is the most important measure of earnings quality. Etemadi and Babaei (2018) also believe that the value relevance of earnings is one of the characteristics of earnings whose   improvement and decline are affected by other quality characteristics.Therefore, due to the importance of interim financial reports and the possible difference between interim earnings information content and annual earnings information content, as well as the existence of differences and inconsistencies in the quality characteristics of earnings affecting annual and interim earnings in previous research and the lack of similar domestic research in this field, the effect of earnings quality characteristics on information content of annual and interim earnings was investigated using a meta-analysis approach.
 
 Questions
In this study our questions are:
Q1: What are the qualitative characteristics of earnings affecting the information content of annual and interim earnings with a meta-analysis approach?Q2: What are the possible moderating variables of qualitative earnings characteristics that affect the information content of annual and interim earnings with a meta-analysis approach?
 
 Methods
To answer research questions, a meta-analysis approach was used in CMA2 software.
 
 Results
Findings indicate the positive and significant effect of earnings quality characteristics such as accounting conservatism, earnings persistence and smoothing, and the negative and significant effect of earnings quality characteristics such as earnings management (real and accrual), and earnings variability on accounting earnings information content. However, accounting earnings information content has been independent from earnings quality characteristics such as disclosure quality, earnings quality, earnings comparability, and auditing quality.
Other important results indicate that in relation to earnings persistence, the type of financial reporting (annual and interim) has been a moderating factor; So that the information content of interim earnings was independent of earnings persistence. In contrast, the effect of earnings persistence on the information content of annual earnings was positive and significant.
 
 Discussion and Conclusion
As stated, the value relevance of earnings is one of the qualitative characteristics of earnings whose improvement and decline are affected by other quality characteristics. In this regard, the summary of the results related to identified qualitative characteristics of the earnings affecting the information content of the earnings (with a specific definition in this study) and the modifying factors and interpretation of the results were as follows:
Overall Results: The general and final results indicate that the characteristics of audit quality, earnings comparability, disclosure quality and earnings quality do not affect the information content of earnings in the sample of studies. However, the characteristics of accounting conservatism, earnings persistence and smoothing have a positive and significant effect on information content, and in contrast, the characteristics of accrued earnings management, earnings variability and real earnings management have a significant negative effect on earnings information content.
Based on the findings of the present study, researchers should consider the moderating and effective factors identified in examining the relationship between qualitative characteristics of earnings and information content of accounting earnings, and so choose their research methods and models in such a way that while controlling the effect of this type of factors, report accurate results of the relationships between the main variables, and according to the existence or absence of the relationship between the main variables, choose factors affecting the information content of earnings for future reviews.
 
Keywords: Earnings quality characteristics, Information content of annual and interim earnings, Meta-analysis approach.
 
 

Keywords

References

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Journal of Accounting Advances
Volume 13, Issue 2 - Serial Number 81
December 2021
Pages 157-196

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History

  • Receive Date: 28 November 2021
  • Revise Date: 13 March 2022
  • Accept Date: 13 March 2022

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