Earnings quality as a predictor of firm performance: empirical analysis in the USA

Adel Almasarwah, Ahmed Al-Omush, Yahya Marei and Humoud Almutairi

International Journal of Managerial and Financial Accounting, 2025, vol. 17, issue 2, 159-174

Abstract: This study explores the link between firm performance and earnings quality in the USA, employing real earnings management (REM) and accruals earnings management (AEM) models. Through panel data robust regression analysis, we assess firm performance proxies, including return on assets, return on equity, operating cash flow, cash ratio, current ratio, and receivable accruals. Results highlight the significant impact of measures such as return on assets, return on equity, operating cash flow, cash ratio, current ratio, receivables accruals ratio, leverage, and firm industry on earnings quality. Notably, increasing liquidity and higher debt positively influence earnings quality, particularly in low-interest-rate environments. However, qualitative insights are essential for a comprehensive understanding of firm performance. Varied firm performance metrics exhibit distinct impacts on earnings quality, with return on assets and return on equity having the most significant effect. This research, integrating real and accrual earnings management, contributes original insights into corporate earnings management and firm performance in the USA context.

Keywords: firm performance; earning quality; ROA; ROE; operating ratio; the USA. (search for similar items in EconPapers)
Date: 2025
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