Comparing the Effect of Earnings Quality Measures on Excess Returns

This paper examines how commonly used earnings quality measures fulfill a key objective of financial reporting. We predict that Firms with higher earnings quality will be less mispriced than other firms. Mispricing is measured by the difference of the mean absolute excess returns of portfolios formed on high and low values of a measure. Our sample is
consists of 110 companies of those listed in TSE between 2009 to 2013. The results showed that the debt ratio, company size and sales growth have no significant effect on earnings quality. While return on assets, profits and cash flows as a measure of profitability, have a direct impact on earnings quality. However, accruals, depending on the type used in various models have a direct effect, or no effect is reversed.