Does corporate governance affect earnings quality: Preliminary evidence from Bangladesh

This paper investigates whether firm corporate governance practices have an effect on the quality of its publicly released financial information. Researchers carrying out earnings quality research usually relies on Dechow and Dichev (2002), Leuz et al (2003), Penman (2001) or Barton and Simko (2002), Healy’s (1985) approach. However, because of criticisms levelled against extant models of earnings quality measurement, this study instead uses earnings quality measures (proxied by DACCR) constructed by Jones (1991). Using an unbalanced polled sample of 648 firm-years for the period of 2000-2006, our result suggests that corporate governance has a significant impact on earnings quality. With little exception, governance variables and control variables appear to have significant effects on earnings quality. These results imply that despite significant governance differences between Bangladesh and developed market economies, there are strong similarities in internal governance.