Earnings Quality and Firm Market Valuation Following the Implementation of Mandatory Accounting Standards in an Emerging Country: The Egyptian Experience
Mohamed A. Elbannan
Cairo University - Department of Accounting
September 1, 2008
This study examines the impact of the mandatory application of the 1997 and 2006 Egyptian accounting standards on earnings quality and firm valuation. Prior research finds that IS-based standards have positive effects on financial statement attributes (e.g., earnings management) and capital market-related variables (e.g., firm valuation) in some countries, and negative or neutral effects in others. Research conducted in this area on emerging markets is scant, and none in Egypt, which has adopted in 1997 an IS-based standards (later revised twice in 2002 and 2006). Using a sample of Egyptian listed firms around the time of introducing the 1997 and 2006 EAS versions, I find insignificant empirical evidence that earnings management decreases post adoption of each of the EAS versions under investigation. Additionally, I find that firm valuation (Tobin's q) was significantly negatively affected by both EAS versions under investigation in this study. I attribute these results to the lack of compliance by financial statement preparers, improper regulatory enforcement mechanisms, the poor accounting infrastructure, and the inadequate practitioner training, claimed by prior literature.
Number of Pages in PDF File: 34
Keywords: Financial accounting, International Financial Reporting Standards, Earnings Quality, Firm valuation, Tobin Q, Emerging economies, Egypt, Compliance
JEL Classification: M41, N85, L21working papers series
Date posted: October 5, 2008 ; Last revised: May 24, 2010
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