Browsing by Author "Duarte, Ana Filipa"
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- Does earnings quality impact firms’ performance? The case of Portuguese SMEs from the mold sectorPublication . Duarte, Ana Filipa; Lisboa, Inês; Carreira, PedroPurpose: This work aims to study the impact of earnings quality on firms’ financial performance. Design/methodology/approach: An unbalanced panel data of 237 small and medium-sized Portuguese companies from the mold industry, using 2010-2018 yearly data was analyzed. While most studies focus only on earnings management when assessing earnings quality, in this study six proxies for earnings quality are used, namely accruals quality (a proxy for earnings management), earnings persistence, earnings predictability, earnings smoothness, earnings timeliness, and earnings conservatism. Moreover, two proxies of financial performance are considered, the return on assets and the economic value added. An econometric model was estimated using either a fixed-effects or a random-effects specification to account for the individual firm-specific effects and ensure heteroscedasticity corrected estimates. Findings: The results show that managers must be concerned with the quality of reported earnings, as it can affect positively firms’ financial performance, especially regarding accruals quality. Persistence, predictability, smoothness, timeliness, and conservatism are shown not to exert significant influence on financial performance in the sample. Research limitations/implications: This work contributes not only as a literature review on these thematic but also to firms’ managers and stakeholders, who have information that helps them select strategies that guarantee earnings quality and improve firms’ financial performance. Originality/value: We proposed an econometric model that studies the relationship between earnings quality (using several proxies for it) and financial performance that can be applied to all companies.
- Impact of earnings quality on company's performance: a literature reviewPublication . Duarte, Ana Filipa; Lisboa, Inês; Carreira, PedroPurpose: Stakeholders use financial information in their decision-making process. Although, if financial information lacks appropriate quality, stakeholders’ perceptions will be biased. Thus, understanding earnings quality is crucial. Earnings quality is linked with the thematic of earnings management, as managing earnings is likely to decrease their quality. More recently, the literature has turned its attention to the impact of earnings quality on company’s performance. This work aims to understand the characteristics of earnings quality and how can it be measured. Additionally, it plans to investigate the impact of earnings quality on company’s performance. Methodology: This work is a literature review about earnings quality and its impact on company’s performance. Seven characteristics of earnings quality are simultaneously considered: accruals quality, persistence, predictability, smoothness, value relevance, timeliness, and conservatism. Different measures of these characteristics are analyzed, by explaining the differences among them and identifying the specific cases when these characteristics can be used. Moreover, the impact of earnings quality on company’s performance is analyzed to investigate if low earnings quality has a negative impact on company’s performance. Different measures of performance/ratios are also addressed, both market-based and accounting-based. Findings: High earnings quality usually has a positive impact on performance since the investment and financing decisions are based on correct information, thus increasing company’s profits and value creation. The use of earnings management practices, or of other techniques that reduce earnings quality, increase the probability of financial distress, as decisions may not be accurate, and the company’s financial situation may be different from the one presented in the financial statements. Originality: This paper presents an in-depth study of earnings quality and its impact on company’s performance. Most studies focus on earnings management, or other specific characteristic of earnings quality, but in an isolated perspective. Few studies consider the seven characteristics of earnings quality simultaneously. This study addresses this caveat. Moreover, the impact of earnings quality on performance is also relevant, especially to stakeholders, for a better understanding of the company’s financial information and for better decision making that can increase the company’s value.