Influence of Economy Growth on Earnings Quality of Listed Companies in Poland

Abstract

Earnings is one of the most aggregated and most important financial performance measures used by decision makers. It seems probable that some companies may try to smooth earnings in order to present a “better” financial situation especially in the periods of economic slowdown. However, earnings management means that the reported earnings are not of high quality.

On the grounds of scientific literature, there is still a need to verify by designed investigations the influence of different determinants of earnings quality, such as regulations, economic condition, and motivation systems.

The aim of the paper is to find out whether an economic condition influences earnings quality. The study was performed on the sample of 312 companies listed on Warsaw Stock Exchange and the GDP growth rate was chosen as a proxy of an economic condition. The study has revealed that earnings quality proves to be higher in the years of high growth rate of GDP in Poland. This may suggest that earnings reflect quite well economic performance of companies which strongly correlates with overall economic situation measured by GDP growth.

DOI: http://dx.doi.org/10.5755/j01.ss.82.4.6602