Organizational performance and earnings quality: A quantitative examination of the impact of organizational performance on earnings quality

Earnings quality is an important concept for researchers and practitioners since it measures the quality of the accounting information that a firm provides to its financial information users: the higher the earnings quality, the more reliable is the accounting information in reflecting a firm's performance. Many studies have previously been done on earnings quality. However, the way organizational performance is related to the earnings quality when the control and enforcement is proper, which means that earnings management activities are widely monitored, had never been explored. The Modified Jones Model was used to measure earnings quality, and customer satisfaction scores from the American Customer Satisfaction Index (ACSI) were used to measure organizational performance. Although the study revealed a positive relationship between organizational performance and earnings quality, the result was not significant. The study argues that the insignificant result is mostly due to the limitation of accrual models, for example the Modified Jones Model, in detecting earnings quality. The study provides an in-depth discussion about the measurements and provides valuable implications and suggestions for further research.