Does Ownership Structure and Financial Health Affect Firm’s Earnings Quality? Evidence from Emerging Economy

Dr. Asad Abbas, Dr. Asif Saeed and Asad Abbas
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Dr. Asad Abbas: Assistant Professor, Department of Management Sciences, COMSATS University Islamabad, Pakistan
Dr. Asif Saeed: Assistant Professor, Department of Management Sciences, COMSATS University Islamabad, Pakistan
Asad Abbas: Lecturer, Department of Economics, COMSATS University Islamabad, Vehari Campus, Pakistan

Bulletin of Business and Economics (BBE), 2023, vol. 12, issue 4, 665-671

Abstract: Earnings quality is a demanding attribute of firm and is valued by investors in resource allocation decisions. High earnings quality firms create value for stakeholders and poor earnings quality causes value deterioration. This study takes into account earnings quality attributes of Pakistani corporate sector and investigates impact of ownership structure and financial health on firms’ earnings quality. Earnings quality has been measured by four attributes of accrual quality, earnings persistence, earnings predictability, earnings smoothness. A sample of 325 non-financial PSX listed Firms have been selected and classified into four unique categories on the basis of financial health (healthy and distressed) and ownership (family and non-family). The classification aims to determine level of earnings quality for each category. Results find significant effect of book financial position and ownership structure on earnings quality of firms. Findings reveal Earnings quality for non distressed family (NDF) firms was highest followed by non distressed non family firms (NDNF) while earnings quality for distressed family (DF) firms was poor and poorer for distressed non family (DNF) firms when firms were classified into these four categories. These results provide important implications for investors analysts regulators and standard setters.

Keywords: earnings quality; earnings persistence; predictability; smoothness; financial distress; family firms (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:rfh:bbejor:v:12:y:2023:i:4:p:665-671

DOI: 10.61506/01.00227

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