A Review on the Multidimensional Analysis of Earnings Quality

  1. Licerán Gutiérrez, Ana 1
  2. Cano Rodríguez, Manuel 1
  1. 1 Universidad de Jaén
    info
    Universidad de Jaén

    Jaén, España

    ROR https://ror.org/0122p5f64

    Geographic location of the organization Universidad de Jaén
Journal:
Revista de contabilidad = Spanish accounting review: [RC-SAR]

ISSN: 1138-4891

Year of publication: 2019

Volume: 22

Issue: 1

Pages: 41-60

Type: Article

DOI: 10.6018/RC-SAR.22.1.354301 DIALNET GOOGLE SCHOLAR lock_openDialnet editor HANDLE: https://hdl.handle.net/10201/68680

More publications in: Revista de contabilidad = Spanish accounting review: [RC-SAR]

Abstract

There is a generalized consensus among accounting researchers about the multidimensional nature of earnings quality: Earnings quality depends on a series of characteristics that enhance the usefulness of the earnings figure for decision making. In this paper, we undertake a literature revision on empirical research on earnings quality that reveals that, although earnings quality is probably the most recurrent topic in accounting, empirical research that have treated earnings quality as a multidimensional concept is almost inexistent. In this sense, we document that: (1) Most of the empirical papers on earnings quality deal with just one earnings characteristic, not including the potential effect of the other characteristics related to earnings quality. (2) Some characteristics (particularly, accruals quality and, in a lesser way, conservatism) are widely employed for representing earnings quality, whereas other characteristics (smoothness, persistence) are much less used by researchers. (3) The research on the relationships among the different earnings quality characteristics is scant and with mixed results. (4) Only a few papers develop multidimensional measures of earnings quality, but these measures are based on too restrictive assumptions and there is no evidence of superiority over single-dimension measures. We complement our bibliometric analysis by discussing the limitations of both the single-dimension approach and the multidimensional approaches used to date, illustrating our arguments with a simulation process. Henceforth, this review contributes to prior literature highlighting the main problems in prior literature for earnings quality measurement.

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