Journal article Open Access

MEASURING EARNINGS QUALITY: EMPIRICAL EVIDENCE FROM LISTED TEXTILE COMPANIES OF BANGLADESH

Sharmin Akter and Md. Hossain Ali

Though earnings quality is extensively used to comment on the financial performance of a firm, there is no universally accepted approaches to measure it. Academic research on earnings quality employed different approaches to assessing the extent of earnings management. This study employed the four-dimensional approaches suggested by Penman (2001), Barton and Simko (2002), Leuz et al. (2003) and Desai et al. (2006). Using a sample of 35 companies for 12 years, this study aims to assesswhether there is any consistencyamong the four measures of earnings quality of listed textile companies in Bangladesh and if no consistency is found the earningsquality is questionable and needs future investigations. The result showedthat there are 32 (about 92%) companies with questionable measures of earnings quality and the remaining 3 (almost 8%) companies with high earnings quality. It implies that the measures of earnings quality are inconsistentfor the majority of the companies over the year. So, one company cannot be labeled as high or low quality based on a single approach. Moreover, the correlation analysis also shows inconsistency among the four approaches. Therefore, this research sheds light on the inconsistency among measures of earnings quality and signalsstakeholders of the companies to use more than one measure while making decisions as one approach cannot complement other approaches.

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