Researchers have used various measures as indications of "earnings quality" including persistence, accruals, smoothness, timeliness, loss avoidance, investor responsiveness, and external indicators such as restatements and SEC enforcement releases. For each measure, we discuss causes of variation in the measure as well as consequences. We reach no single conclusion on what earnings quality is because "quality" is contingent on the decision context. We also point out that the "quality" of earnings is a function of the firm's fundamental performance. The contribution of a firm's fundamental performance to its earnings quality is suggested as one area for future work.

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Understanding Earnings Quality: A Review of the Proxies, Their Determinants and Their Consequences

https://repository.upenn.edu/cgi/viewcontent.cgi?article=1004&context=accounting_papers

http://lib.cufe.edu.cn/upload_files/other/4_20140516025220_14.pdf

The relation between earnings and cash flows

We investigate the relation of the board of directors and institutional ownership with the properties of management earnings forecasts. We find that firms with more outside directors and greater institutional ownership are more likely to issue a forecast and are inclined to forecast more frequently. In addition, these forecasts tend to be more specific, accurate and less optimistically biased. These results are robust to changes specification, Granger causality tests, and simultaneous equation analyses. The results are similar in the pre– and post–Regulation Fair Disclosure (Reg FD) eras. Additional analysis suggests that concentrated institutional ownership is negatively associated with forecast properties. This association is less negative in the post–Reg FD environment, which is consistent with Reg FD reducing the ability of firms to privately communicate information to select audiences.

The Association between Outside Directors, Institutional Investors and the Properties of Management Earnings Forecasts

We review research from the 1990s that examines the determinants and consequences of accounting choice, structuring our analysis around the three types of market imperfections that influence managers? choices: agency costs, information asymmetries, and externalities affecting noncontracting parties. We conclude that research in the 1990s made limited progress in expanding our understanding of accounting choice because of limitations in research design and a focus on replication rather than extension of current knowledge. We discuss opportunities for future research, recommending the exploration of the economic implications of accounting choice by addressing the three different reasons why accounting matters.

Empirical Research on Accounting Choice

The impact of the 1989 change in bank capital standards on loan loss provisions and loan write-offs

This research examines both the association between quarterly announcement timing (early or late) and the type of news (good or bad) reported, and the relationship between stock returns and timing around the earnings announcement date. Recent research on announcement timing (Givoly and Palmon [1982], Patell and Wolfson [1982], Kross [1981], and Whittred [1980]) has provided evidence that delayed announcements of annual earnings more often convey bad news (i.e., lower than expected earnings) than do early announcements. However, we know of no study which has reported evidence of the same phenomenon for quarterly earnings. Furthermore, there is a limited amount of evidence regarding the reaction of market participants to announcement timing. While three studies (Givoly and Palmon [1982], Kross [1982], and Chambers and Penman [1984]) find that early (late) announcements are associated with higher (lower) abnormal returns or high (low) stock return variability, relative to late (early) announcments, only Kross [1982] controlled for the sign of the earnings forecast error and none controlled for the magnitude of the earnings forecast error. It is well accepted that stock returns are associated with the sign of the earnings forecast error (EFE). Since announcement timing is also

William Kross

Papers

The impact of the 1989 change in bank capital standards on loan loss provisions and loan write-offs

An Empirical Investigation of the Effect of Quarterly Earnings Announcement Timing on Stock Returns

Earnings and announcement time lags

A test of risk clientele effects via an examination of trading volume response to earnings announcements

Firm Prominence and the Differential Information Content of Quarterly Earnings Announcements