The Relationship between Earnings Quality, Control Mechanisms of Corporate Governance, and Future Stock Price Returns: The Case of the Netherlands

Corporate Ownership and Control Journal, Vol. 10 2013 (Forthcoming)

28 Pages Posted: 24 Jul 2013

See all articles by Elisabetta Basilico

Elisabetta Basilico

International Center of Corporate Governance

Hugh Grove

University of Denver

Date Written: July 24, 2013

Abstract

This article extends prior research on the relation between earnings quality (assessed by accruals) and future stock price returns and adds new research on the relationships between direct and indirect corporate governance mechanisms of control with accruals and future stock price returns. We study public companies of the Netherlands and find the presence of mispricing associated with very high and very low accruals. We also find evidence that direct corporate governance control mechanisms, such as the existence of separate, independent, and skilled audit committees, are related to higher earnings quality and higher future stock price returns.

Keywords: Corporate Governance, Earnings Quality, Earnings Management, Accruals, Stock Returns

Suggested Citation

Basilico, Elisabetta and Grove, Hugh, The Relationship between Earnings Quality, Control Mechanisms of Corporate Governance, and Future Stock Price Returns: The Case of the Netherlands (July 24, 2013). Corporate Ownership and Control Journal, Vol. 10 2013 (Forthcoming), Available at SSRN: https://ssrn.com/abstract=2297750 or http://dx.doi.org/10.2139/ssrn.2297750

Elisabetta Basilico (Contact Author)

International Center of Corporate Governance ( email )

Pestalozzistrasse 2
P.O. Box 634
St. Gallen, 9001
Switzerland

Hugh Grove

University of Denver ( email )

School of Accountancy
Denver, CO 80208-2685
United States
303-871-2026 (Phone)
303-871-2016 (Fax)

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