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The financial reporting quality effect on European firm performance

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  • 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)

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    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.

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    Bibliographic Info

    Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 403.

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    Length: 23 pages
    Date of creation: Feb 2011
    Date of revision:
    Handle: RePEc:por:fepwps:403

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    Keywords: Accounting quality; firm performance; abnormal accruals;

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