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The financial reporting quality effect on European firm performance

Author

Listed:
  • Cláudia Maria Ferreira Pereira Lopes

    (Instituto Superior de Contabilidade e Administração do Porto)

  • António Cerqueira

    (Faculdade de Economia da Universidade do Porto)

  • Elísio Brandão

    (Faculdade de Economia da Universidade do Porto)

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.

Suggested Citation

  • Cláudia Maria Ferreira Pereira Lopes & António Cerqueira & Elísio Brandão, 2011. "The financial reporting quality effect on European firm performance," FEP Working Papers 403, Universidade do Porto, Faculdade de Economia do Porto.
    • Handle: RePEc:por:fepwps:403
    as

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    File URL: http://www.fep.up.pt/investigacao/workingpapers/11.02.23_wp403.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Accounting quality; firm performance; abnormal accruals;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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