The literature on International Diversification suggests that investors and analysts value foreign earnings differently than domestic earnings. Prior studies also show an overall "valuation discount" for firms with foreign operations. To my knowledge, no study has empirically tested and found there to be differences in earnings quality for these firms. This study investigates differences in the quality of earnings for U.S. firms with foreign operations using a direct measure (discretionary accruals) and an indirect measure (investor perception of earnings). I also consider the impact of audit quality on each measure of earnings quality. In the first part of my dissertation I find firms with foreign operations report lower discretionary accruals than firms with only domestic operations. This indicates that auditors, similar to investors and analysts, report more conservatively for firms with foreign operations. My results show that audit quality further reduces the absolute value of reported accruals, and I find a higher level of reported "income decreasing" accruals for these firms. In the second section of my dissertation I consider the impact of audit quality on investor perception of earnings. Similar to earlier papers I find that foreign earnings changes are more highly associated with changes in firm value than domestic earnings changes, and this larger earnings response is attributed to negative changes in foreign earnings. I also find that audit quality improves investor perception of foreign earnings for firms with foreign operations. While there are ample studies demonstrating that firms with foreign operations are valued differently than firms with purely domestic operations, my study is the first to provide empirical evidence about how audit quality impacts financial reporting, the quality of earnings, and investor perception of earnings for firms with foreign operations. / Business Administration/Accounting

Whether the quality of a firm's reported earnings affects investors' ability to predict future earnings and stock returns is still a subject of much debate among accounting researchers. Lev (1989) suggests that low quality earnings may be causing the relatively low correlation between reported earnings and stock returns (or the market's evaluation of future earnings). This dissertation used the valuation model described in Ohlson (1995) and Feltham and Ohlson (1995) to explore the possible links between accounting method choices and the ability of investors to use reported earnings to predict future earnings. The results demonstrate that prior researchers' assumptions regarding which accounting methods are generally conservative or liberal are reasonably accurate over large numbers of firms. The results also show that one group of analysts (Value Line Investment Survey) is able to predict future earnings more accurately over medium-term and long-term forecast horizons for firms using generally conservative accounting methods than those firms employing generally liberal accounting methods. This research adds to the prior "quality of earnings" research by showing that analysts can predict earnings more accurately for certain classes of firms (i.e., firms using conservative accounting methods), thus increasing our knowledge of what constitutes high-quality earnings. The research also explores the effects of growth on the quality of earnings question, the effects of firm size, leverage, and industry membership on the relationship, and the robustness of the Feltham and Ohlson Model to alternative definitions of key components of the model. / Ph. D.

Introduction: Prior research, mainly based in USA and Asia, has shown a relationship between ownership structure and earnings quality. Low earnings quality might result in inefficient resource allocation, lower economic growth and unintended wealth transfers. Following these issues, and due to the fact that the Swedish institutional setting differs from other countries, there is a need to explain the relationship in a Swedish context. Purpose: The purpose of this study is to explain how different ownership structures affect earnings quality. Method: This study is based on a deductive approach where the hypotheses have been deducted from agency theory, alignment effect, entrenchment effect and active monitoring hypothesis. The quantitative data consists of secondary data, namely annual reports. The study has been conducted with a cross-sectional design. Conclusion: The results show a positive relationship between foreign ownership and earnings quality. The result can be explained with agency theory’s type I-problem. Other ownership structures show no significant relationship. / Introduktion: Tidigare forskning, främst i USA och Asien, har hittat samband mellan företags ägarstruktur och earnings quality. Låg earnings quality kan resultera i ineffektiv resursallokering, lägre samhällsekonomisk tillväxt samt omotiverade förmögenhetsöverföringar. Till följd av dessa problem, samt att Sveriges institutionella miljö skiljer sig åt från andra länder, finns behovet att förklara sambandet i en svensk kontext. Syfte: Studiens syfte är att förklara hur olika ägarstrukturer påverkar earnings quality. Metod: Studien utgår från en deduktiv ansats där hypoteser deducerats utifrån agentteori, alignment effect, entrenchment effect, samt active monitoring hypothesis. Kvantitativ data består av sekundärdata i form av årsredovisningar. Studien har genomförts med en tvärsnittsdesign. Slutsats: Studiens resultat visar att företag med högre andel utländskt ägande tenderar att redovisa högre earnings quality. Resultatet kan förklaras av agentteorins typ I-problem. Övriga ägarstrukturer uppvisar inga signifikanta samband.

Syfte: Syftet med den här uppsatsen är att undersöka om blankade bolag har lägre grad av earnings quality än icke-blankade bolag. Metod: Kvantitativ metod, t-test för två populationer som antar olika varianser. Resultat och slutsats: Resultatet i den här studien visar att blankade bolag inte har lägre grad av earnings quality än icke-blankade bolag. Resultatet visar även att icke-blankade bolag har lägre grad av earnings quality än blankade bolag. Därför kan jag inte uttala mig om huruvida blankare använder earnings quality vid tagandet av blankningspositioner / Purpose: The purpose of this essay is to examine if shorted companies have poorer earnings quality than non-shorted companies Method: Quantitative analysis, t-test for two-sample assuming unequal variances Result and conclusion: The results of this study show that shorted companies do not have poorer earnings quality than non-shorted companies. The results also indicate that non-shorted companies have poorer earnings quality than shorted companies. Thus, I cannot comment on whether short sellers are using information about earnings quality when taking short positions

The paper empirically tests the relationship between earnings volatility and cost of debt with a sample of more than 77,000 Swedish limited companies over the period 2006 to 2013 observing more than 677,000 firm years. As called upon by many researchers recently that there is very limited evidence of the association between earnings volatility and cost of debt this paper contributes greatly to the existing literature of earnings quality and debt contracts, especially on the consequence of earnings quality in the debt market. Earnings volatility is a proxy used for earnings quality while cost of debt is a component of debt contract. After controlling for firms’ profitability, liquidity, solvency, cashflow volatility, accruals volatility, sales volatility, business risk, financial risk and size this paper studies the effect of earnings volatility measured by standard deviation of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) on Cost of Debt. Overall finding suggests that lenders in Sweden does take earnings volatility into consideration while determining cost of debt for borrowers. But a deeper analysis of various industries suggest earnings volatility is not consistently used by lenders across all the industries. Lenders in Sweden are rather more sensitive to borrowers’ financial risk across all the industries. It may also be stated that larger borrowers tend to secure loans at a lower interest rate, the results are consistent with majority of the industries. Swedish debt market appears to be well prepared for financial crises as the debt crisis seems to have no or little adverse effect borrowers’ cost of capital. This study is the only empirical evidence to study the association between earnings volatility and cost of debt. Prior indirect research suggests earnings volatility has a negative effect on cost debt (i.e. an increase in earnings volatility will increase firm’s cost of debt). Our direct evidence from the Swedish debt market is consistent for some industries including media, real estate activities, transportation & warehousing, and other consumer services.

The Chinese economy went through significant reforms in the past few decades but remains highly politicized to this day. The financial reporting environment is also predominantly opaque, being correlated with low accounting quality of firms. A key measure to observe is earnings quality. I test and compare the earnings smoothing, managing towards targets, and timely loss recognition earnings management behaviors between politically connected and unconnected firms listed in China. Based on the empirical results, I find that the politically connected firms engage in a higher degree of earnings management and thus have lower earnings quality.

O propósito do presente estudo foi investigar a relação entre qualidade das informações contábeis, restrição financeira e decisões de investimentos na América Latina. Para isso analisou-se uma amostra com 10.318 observações de 958 empresas não financeiras de capital aberto, oriundas de sete diferentes países, entre os períodos de 1992 a 2009. Com o uso do modelo probabilístico Logit estimou-se o impacto da qualidade dos lucros na probabilidade das firmas apresentarem superinvestimentos, subinvestimentos ou restrição financeira. Em seguida, utilizando o método dos momentos generalizados (GMM) e uma adaptação do modelo acelerador de investimentos, estimaram-se os determinantes dos investimentos. Os resultados indicam que uma pior qualidade nos lucros possa reduzir a probabilidade de decisões eficientes de investimentos e aumentar a possibilidade de subinvestimentos. Verificou-se haver indícios de que a pior qualidade nos lucros possa exacerbar os problemas causados pelo conflito de interesses entre os tomadores de decisões e os investidores das firmas latino-americanas, pois a baixa qualidade nos lucros mostrou-se positivamente associada às taxas de investimentos das firmas com superinvestimentos e negativamente relacionada às taxas de investimentos das firmas com subinvestimentos. Por fim, os resultados indicam que a qualidade dos lucros afeta a sensibilidade dos investimentos ao caixa das firmas que estejam em situação de restrição financeira. Assim, conclui-se que a qualidade das informações financeiras, como ferramenta para redução de assimetria de informações, pode impactar as decisões de investimentos das empresas da América Latina. / The purpose of this study was to investigate the relationship among accruals quality, financial constraint and investment decisions in Latin America. For this, it was analyzed a sample with 10,318 observations of 958 non-financial companies from seven different countries, between 1992 to 2009. Using the probabilistic model Logit it was estimated the impact of earnings quality on the probability of overinvestment, underinvestment and financial constraints. Then, using the generalized method of moments (GMM) and an adaptation of the accelerator model of investment, it was estimated the investment determinants. The results indicate that a poor accruals quality can reduce the probability of efficient investment decisions and increase the possibility of underinvestment. The results show that poor accruals quality could exacerbate the problems caused by the conflict of interest between decision-makers and investors from Latin American firms, because poor accruals quality was positively associated with investment rates for firms with overinvestment and negatively related to firms investment for firms with underinvestment. Finally, the results indicate that the accruals quality affects the investment-cash flow sensitivities for firms in financial constraint situation. Thus, we concluded that quality of financial information, as a tool to reduce information asymmetries, might affect the investment decisions in Latin America.

Les opérations de fusions et acquisitions constituent un élément central de l’économie de marché et parallèlement forment l’un des principaux vecteurs de la dynamique de nos structures industrielles. Notre thèse vise à apprécier de façon objective et scientifique l’impact des opérations de fusions et d’acquisitions sur la qualité de l’information comptable produite par les entreprises. Compte tenu de son importance pour les acteurs économiques, la qualité de l’information comptable est d’abord comprise comme la qualité des résultats publiés par l’entreprise. Trois principaux axes sont dégagés au sein de cette problématique, qui constitue les trois principaux chapitres de notre thèse. Notre travail s’appuie sur une base de données regroupant les opérations des fusions et acquisitions entre les entreprises cotées sur le marché américain de l’année 1986 à l’année 2013. Les principes de ces chapitres sont les suivantes. Nous montrons tout d’abord que les entreprises impliquées dans les opérations payées par une combinaison de titres et de liquidités, opération ayant connues un fort développement, ont un comportement en manière de gestion de résultat proche des entreprises payant uniquement en titres, et à ce jour seules documentées. Nous établissons ensuite que la gestion de résultat de ces entreprises ne se réduit pas à la seule gestion des compte d’”accruals ". Nous montrons que les entreprises mobilisent également d’autre techniques, soit des méthodes purement comptables au travers par rendre de choix de classification des items, soit des méthodes ayant un impact sur les conditions réelles d’exploitation, au travers par exemple de l’ajustement des dépenses de R&D. Des liens de substitution / complémentarité entre ces différentes formes de gestion des résultats sont mise à jour, et mise en perspective des choix de méthodes de paiement des opérations. L’impact de la gestion des résultats sur la performance des acquéreurs est également analysé. Nous établissons en particuliers que si un degré modéré de gestion des résultats pourrait avoir des conséquences positives en manière de la performance, un comportement agressif en matière de gestion des résultats conduisant à reconnaitre un impact négatif sur la performance. Cela étant, il semble que la richesse des actionnaires ne soit affectée que très marginalement par ces choix de gestion des résultats, ceci autant à court terme que à long terme. / The Merger and Acquisition (M&A) operations constitute a key element of market economy and meanwhile form one of the main vectors of the dynamics of the industrial structures. This thesis aims at analyzing the impact of M&A operations on acquiring firm’s accounting information quality. The accounting information quality shall be interpreted first of all, as the quality of earnings. Three main axes are emerged in this problematic and constitute three main chapters of this thesis. By observing all public M&A transactions on the U.S. market from the year 1986 to 2013, these three chapters provide following main contributions. First we find the acquiring firms that involved in the mixed payment acquisition have undergone notable development, have earnings management (EM) behaviors around acquisition years. However, prior study only documented a certain kind of behaviors of the 100% stock exchange acquirers. Plus, we indicate that the EM behavior of acquiring firm is not constraint to the accruals management (AM). We show that they are also likely to use many other ways, either accounting treatment through classification shifting, or real earnings management (REM) methods, for example through the budgetary adjustment of the R&D expenditures. A close link is found between the choice of EM methods and acquisition payment method. Moreover, a substitution / complementary effect is also noted between different forms of EM methods. The impact of these EM strategies on acquiring firm’s performance is also analyzed. A moderate way of EM has positive impact on future operating performance while a high degree of these EM behaviors bring a negative impact. Nonetheless, it seems that the shareholders' wealth is only marginally affected by the choice of EM methods, in the short term as well as the long term.

Esta pesquisa investiga se os resultados contábeis de empresas publicados no Brasil apresentam reconhecimento tempestivo e assimétrico de perdas econômicas na ocorrência de sinais contemporâneos de mau desempenho, atributo de conservadorismo condicional. Através da análise de dados balanceados em painel, efetuaram-se regressões multivariadas utilizando os Modelos de Componentes Transitórios nos Lucros, de Apropriações Contábeis e Fluxos de Caixa, de Apropriações Discricionárias e modelos correlatos. Foram examinados os números contábeis de amostra de 110 Companhias de Capital Aberto e de 2.700 Companhias de Capital Fechado, coletada junto à SERASA, compreendendo o período de 1995 a 2004, abrangendo cerca de 20.000 demonstrações contábeis de sociedades por ações brasileiras. A tese de que os lucros publicados por essas empresas não contêm o atributo do conservadorismo condicional ? as empresas brasileiras não antecipam oportunamente o registro de perdas econômicas ? não pôde ser rejeitada aos níveis usuais de significância estatística. Adicionalmente, foram caracterizados, estatisticamente, evidências de gerenciamento de resultados contábeis, o que distingue o comportamento preponderantemente oportunista dos gestores responsáveis pela divulgação dos agregados contábeis. Ademais, tal característica assinala a baixa eficiência informacional das demonstrações contábeis em sua função de servir como suporte para a elaboração e o monitoramento de contratos entre as firmas e seus públicos de interesse. As companhias de capital fechado não apresentaram ? também com significância estatística ? diferenças relevantes na qualidade informacional de seus relatórios em relação às suas congêneres de capital aberto. Os resultados da pesquisa sugerem que condições institucionais locais ligadas às formas contratuais adotadas pelas firmas brasileiras não incentivam economicamente a demanda de informações contábeis publicadas para o monitoramento ex-post dos contratos com as empresas pesquisadas. Enfim, a ausência dos atributos dos relatórios contábeis aqui estudados conduz à ilação de que não são publicados com a intenção de reduzir a assimetria informacional existente entre agentes associados às firmas e os gestores destas. Ao contrário, pode-se aduzir que o comportamento observado busca preservar benefícios privados do controle das empresas para os gestores, não se constatando a presença de eficiência informacional nos relatórios contábeis pesquisados. / This research project examines whether the published numbers in the financial reports in Brazil present an asymmetric and timely recognition of economic losses upon occurrence of contemporary signs of a poor performance, which is an attribute of conditional conservatism. Through the analysis of balanced panel data, multivariate regressions were made using the Earnings Transitory Components, Accrual Accounting and Cash Flows and Discretionary Accrual Models and other correlative models. Financial reports of a sample of 110 public companies and 2,700 private companies were examined. These financial reports, encompassing about 20,000 financial statements of Brazilian corporations, were obtained from SERASA and covered the period 1995-2004. The thesis that the published profits by these companies do not contain the conditional conservatism attribute? the Brazilian companies do not timely anticipate economic losses? could not be rejected considering the usual levels of statistical significance. Moreover, evidence of earnings management have been statistically characterized, which points out a preponderantly opportunist behavior from the managers in charge of disclosing accounting numbers. Furthermore, such feature indicates poor informational efficiency of the accounting statements when used as a supporting tool for the preparation and monitoring of contracts between companies and their stakeholders. The closely-held companies did not show-- also with statistical significance-- relevant differences in the informational quality of their reports compared to other publiclyheld companies of similar nature. The results from the research suggest that local institutional conditions associated with contractual arrangements adopted by Brazilian companies do not economically encourage a demand for published accounting information for the ex-post monitoring of contracts with the researched companies. Finally, the absence of these accounting reports? attributes leads us to the conclusion that they are not published with the purpose of reducing informational asymmetry between agents associated with those companies and their managers. Otherwise, it can be inferred that this behavior aims to preserve the managers? private benefits of company?s control, not being observed informational efficiency in the researched financial reports.

I examine the association between earnings quality and audit firm type using a three-tiered audit firm classification scheme which allows for an explicit examination of the quality of Second-Tier audited earnings. My tests are motivated by the lack of competition in the market for audit services, theoretical arguments which suggest a positive association between audit firm size and audit quality, evidence pointing to the rapid post-Andersen growth in Second-Tier audit practices, and the lack of empirical research that fully differentiates audit firm type. My results indicate that the post-Andersen growth of Second-Tier audit firms coincides with improved Second-Tier audit quality, relative to the other audit firm types (Big N and other non-Big N). Specifically, the results indicate that Second-Tier client earnings quality was not distinct from that of other non-Big N clients in the pre-Andersen period. However, in the post-Andersen period, the results indicate that Second-Tier client earnings quality was higher than that of other non-Big N clients. Moreover, the post-Andersen results provide partial evidence suggesting that there is no difference in Second-Tier and Big N client earnings quality and, thus, lend some credence to the notion of a new era for the Big 8. These results convey important information to market participants (e.g., investors, underwriters, analysts, etc.) who wish to assess the extent to which financial statements are likely to be free from opportunistic managerial manipulation, to clients that are contemplating switching to a Second-Tier audit firm, to government agencies who have expressed concern over the state of competition in the market for audit services, and to those who have promoted the use of Second-Tier audit firms in the wake of SOX-related resource constraints.