Earning information content changes based on accrual measures and quality measures: Evidences from member countries of Asia Pacific trade agreement

• Published in: International journal of finance and economics 2022-01, Vol.27 (1), p.1526-1546
• Main Authors: Shoaib, Adnan, Siddiqui, Muhammad A.
• Format: Article
• Language: English
• Subjects: accrual quality; discretionary accruals; earning informativeness; earning quality; Earnings management; Longitudinal studies; Market value; panel data model; redundancy
• ISSN: 1076-9307; 1099-1158
• DOI: 10.1002/ijfe.2229

The primary purpose of the study to identify the impact of accruals measures and quality measures on the earning information content that effects market value, while keeping in view the measures of Dechow, Sloan, and Sweeney (1996); Kothari, Leone, and Wasley (2005) and Barton and Simko (2002). The results from 802 companies selected from member countries of APTA indicated that, in all countries except Bangladesh, the earning management is not performed for improving earning informativeness in market and rather it is done for achieving manager's personal benefit. The specific behaviour is seen in India and Sri Lanka in which the higher accrual quality reduces the pricing of earning in market. This behaviour is due to the fact that investors are uninformed. Moreover, this behaviour is due to information asymmetry. The earning quality also has negative influence on earning informativeness towards market value in case of India and Bangladesh, which suggest that overstatement of beginning net operating assets have negative effect on earning information content as this overstatement reduces returns on asset due to overstated denominator, rather it restricts managers from biased earnings. However, in other countries it works in a way suggested by Barton and Simko (2002). The market value measure of India has greater dependency on interaction term as compared to China and Pakistan due to lower price synchronicity. China also has greater influence of interaction term on its company's market values than Pakistan.