QUALITY OF CORPORATE GOVERNANCE SYSTEM AND QUALITY OF REPORTED EARNINGS: EVIDENCE FROM CEE COMPANIES

Abstract

Previous research on Central and Eastern European countries showed that the lower is corporategovernance quality the better is the firm’s financial performance. One of the explanations for thisphenomenon is that weak corporate governance is associated with the low earnings quality, which the presentstudy looks into. The analysis, which was made on 118 companies quoted on Central and Eastern Europeanstock exchanges, shows a prove to the negative relationship between the quality corporate governance and thelevel of accruals. The statistically significant results are based on the cash flow accruals, while balance sheetaccruals, though showing a consistent pattern, do not provide significant evidence. Net income and operatingcash flow discrepancy also detect lower than average earnings quality if a company has weak corporategovernance system, while sufficiently good earnings plausibility in case of the well-managed companies.DOI: http://dx.doi.org/10.5755/j01.em.17.1.2251