Company-specific financial and corporate governance factors affecting the quality of earnings: Empirical study on the Spanish stock market

Abstract

The concept of earnings quality has been widely analyzed after several cases of companies reporting false earnings and experiencing dramatic collapses. Hence, the need for stakeholders to be knowledgeable about the current situation and future prospects of the companies they are involved with. To aid the system, this paper aims to find company-specific financial and corporate governance factors that can act as determinants of the quality of earnings. The researchers took a sample of the companies listed in the Spanish stock market under IBEX 35 over the period 2017–2021. To test the hypotheses, panel, and cross-sectional regressions were run on Stata with the different quality of earnings measured as the dependent variables. The results showed that a company’s earnings age and earnings growth positively impact earnings quality, while its performance and liquidity have a negative impact. Company size can have positive or negative effects based on the chosen quality of earnings measure. Moreover, the different measures of earnings quality reacted differently to independent variables.