The effect of earnings quality and country-level institutions on the value relevance of earnings |
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Authors: | Steven F. Cahan David Emanuel Jerry Sun |
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Affiliation: | (1) Department of Accounting and Finance, University of Auckland, Private Bag 92019, Auckland, New Zealand;(2) Odette School of Business, University of Windsor, Windsor, ON, N9B 3P4, Canada |
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Abstract: | This study investigates the relationship between the value relevance of earnings and earnings quality across countries. We find that there is a stronger relationship between earnings quality and the value relevance of earnings in countries with high investor protection than in countries with weak investor protection. We also find that the association between the value relevance of earnings and earnings quality is higher when a country’s information environment is less opaque. Overall, our study documents evidence on international differences in the ability of stock prices to capture useful accounting information, consistent with the notion that the returns-earnings association reflects not only the quality of accounting earnings but also the informativeness of stock prices. |
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