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This study explores the effects of investor protection on reported earnings quality assessed on the basis of four accounting-based earnings attributes (accruals quality, earnings persistence, earnings predictability, and earnings smoothness). The study hypothesizes that (1) the least favorable values of each earnings attribute (considered individually) generally occur in countries whose institutional characteristics provide weaker investor protection than in countries with stronger investor protection and (2) reported earnings quality (aggregated over the four attributes) is expected to be lower in countries whose institutional characteristics provide weaker investor protection than in countries with stronger investor protection. The findings of this study contribute to the literature by (1) providing insights into cross-country differences in earnings attributes, and (2) showing a linkage between these earnings attributes and reported earnings quality and the protection of investors ’ rights. The results have implications for security analysts, regulators, standard setters, and other accounting information users in enhancing their understanding of legal institutional differences and their impact on the properties of reported accounting earnings. 1.
Boonlert‐U‐Thai et al. (Thu,) studied this question.