TY - JOUR

T1 - Do fair value measurements affect accounting-based earnings quality? A literature review with a focus on corporate governance as moderator

AU - Thesing, Johannes

AU - Velte, Patrick

N1 - Publisher Copyright: © 2021, The Author(s).

PY - 2021/9

Y1 - 2021/9

N2 - This structured literature review of 48 archival-based studies investigates the influence of fair value measurements on earnings quality and stresses the moderating impact of corporate governance. We focus on accounting-based earnings quality measures that have several advantages for investigating agency-related earnings management behavior compared to market-based measures (e.g. value relevance studies). Fair value measurements are not restricted to specific industries, periods, circumstances, or items in our sample. Based on the applied earnings quality measure, the reviewed articles are structured into five categories: (1) earnings persistence and predictive ability, (2) discretionary accruals, (3) target beating and properties of analysts’ forecasts, (4) earnings variability, and (5) other earnings quality measures. We indicate three key findings: first, fair value measurements show mixed earnings quality; second, lower-level fair value measurements decrease earnings quality; and third, corporate governance measures enhance earnings quality. After that, we deduce six research questions for future research. We show possible extensions to previous research designs in methodology and settings. Future research should also focus on corporate governance variables to a greater extent, especially compensation and board structures. Thereby, we suggest extending the neoclassical view with behavioral aspects.

AB - This structured literature review of 48 archival-based studies investigates the influence of fair value measurements on earnings quality and stresses the moderating impact of corporate governance. We focus on accounting-based earnings quality measures that have several advantages for investigating agency-related earnings management behavior compared to market-based measures (e.g. value relevance studies). Fair value measurements are not restricted to specific industries, periods, circumstances, or items in our sample. Based on the applied earnings quality measure, the reviewed articles are structured into five categories: (1) earnings persistence and predictive ability, (2) discretionary accruals, (3) target beating and properties of analysts’ forecasts, (4) earnings variability, and (5) other earnings quality measures. We indicate three key findings: first, fair value measurements show mixed earnings quality; second, lower-level fair value measurements decrease earnings quality; and third, corporate governance measures enhance earnings quality. After that, we deduce six research questions for future research. We show possible extensions to previous research designs in methodology and settings. Future research should also focus on corporate governance variables to a greater extent, especially compensation and board structures. Thereby, we suggest extending the neoclassical view with behavioral aspects.

KW - Management studies

KW - Fair value

KW - Corporate governance

KW - audit

KW - earnings quality

KW - earnings management

UR - http://www.scopus.com/inward/record.url?scp=85100494824&partnerID=8YFLogxK

UR - https://www.mendeley.com/catalogue/3bda7c1e-45b0-3c9c-8726-a5d1696268c5/

U2 - 10.1007/s11573-020-01025-6

DO - 10.1007/s11573-020-01025-6

M3 - Journal articles

VL - 91

SP - 965

EP - 1004

JO - Journal of Business Economics : JBE

JF - Journal of Business Economics : JBE

SN - 0044-2372

IS - 7

ER -