The Impact of Managerial Ability on Earnings Quality of Companies Listed in Tehran Stock Exchange

Earnings quality is an important characteristic of financial reports that affects the resources allocation efficiently. Because earnings are the main input to investors and analysts valuation models، firms with poor earnings quality tend to have higher costs of capital. While the archival literature in the area of earnings quality has largely focused on firm-specific characteristics، such as firm size and board independence، this study examined the manager-specific aspect of earnings quality. In this paper، the effect of managerial ability on earning quality is examined. In order to test the issue two hypotheses developed and a sample consists of 62 companies (434 firm-years) of the companies listed in Tehran Stock Exchange (TSE) during the years 2002 to 2008 were selected by using the omission systematic method. The research hypothesis test results showed that managerial ability has negative effect on the restatements that supported this paper’s hypothesis. It means when the managers have more ability، there is less probability that they have restatement. The results do not provide strong evidence that managerial ability affect earning persistence and no meaningful effects were found.