This study investigates the relationship between earnings quality (accrual quality, earnings persistence,\r\nearnings predictability) and corporate governance dimensions (strength and adequacy) at listed\r\ncompanies in Tehran Stock Exchange. Under the premise that firms that have good performance in the\r\npast have less residual agency problem, we use return on equity (ROE) as a measure of the adequacy\r\nof corporate governance in place. We use constructed G-Index from corporate governance mechanisms\r\nas a measure of the strength of corporate governance. We find that earnings quality-accrual quality,\r\nearnings persistence, earnings predictability is higher for firms that have good performance in the past\r\nregardless of whether the corporate governance levels were strong or weak. We also find that\r\nreporting/earnings quality is higher for such firms after controlling for the strength of corporate\r\ngovernance. Further, we find that firms with weak-governance may not necessarily low earnings quality\r\nrelative to firms with strong governance. We also find that as long as firms have adequate corporate\r\ngovernance, there is no different between weak-governance firms and strong-governance firms.\r\nOverall, the results support the conclusion of adequacy rather than the strength of corporate\r\ngovernance, which is associated with earnings quality.
Loading....