Earnings informativeness in dual-class firms

Abstract

Purpose The purpose of this study is to explain the poor informativeness of earnings in dual-class firms by examining the quality of earnings and the information environment. Design/methodology/approach The earnings informativeness, earnings quality and information environment of dual-class firms are compared with a matched sample of single-class firms. The authors have performed the returns-earnings association tests, examine the quality of earnings by using proxies for discretionary accruals, and examine the information environment by employing four empirical constructs: the analyst forecast dispersion, absolute forecast errors, Amihud’s (2002) illiquidity measure, and the bid-ask spread. Findings The results show that the quality of earnings is better while the quality of the information environment is worse in dual-class firms compared to single-class firms. Overall, the results suggest that an inferior information environment is a plausible explanation for the low informativeness of dual-class firms’ earnings. Research limitations/implications The results provide empirical support for Dechow et al. (2010) that the use of the earnings-returns association measure to draw conclusions about the quality of earnings is not appropriate in the presence of a poor information environment. Originality/value This is the first study to empirically show that low earnings informativeness in dual-class firms can be explained by the inferior quality of the information environment.

The Value relevance of accounting performance measures for quoted family firms: A study in the light of the alignment and entrenchment hypotheses

“…Finally, other contextual variables could be considered in future research. For example, the type of shares could have an explanatory power, as some authors such as Lobanova Lobanova, Barua, Mishra, and Prakash (2019) show that the earnings are less informative in dual-class firms compared to single-class firms.…”

Earnings quality and firm valuation: evidence from several European countries

“…As Dechow et al (2010, p. 344) mention, scholars have used numerous proxies such as “ persistence, accruals, smoothness, timeliness, loss avoidance, investor responsiveness and external indicators such as restatements and SEC enforcement releases. ” These attributes of EQ have been rigorously studied with regard to the consequences of governance at micro and macro level (namely, as corporate governance and country-level governance) (Agnes Cheng et al , 2007; Chiang et al , 2017; Gaio and Raposo, 2014; Harymawan and Nowland, 2016; Jiang et al , 2008; Islam et al , 2022; Lobanova et al , 2019; Machuga and Teitel, 2009; Rezaee and Safarzadeh, 2023; Salehi et al , 2018; Salehi et al , 2020; Seifzadeh et al , 2021; Thesing and Velte, 2021), International Financial Reporting Standards (IFRS) adoption (Ho et al , 2015; Houqe et al , 2012, 2016; Ismail et al , 2013; Kabir et al , 2010; Krishnan and Zhang, 2019; Liu and Sun, 2015; Sun et al , 2011), audit quality (Chen et al , 2018; Huang et al , 2016; Lambert et al , 2017; Lennox et al , 2016), organizational outcome (Charitou et al , 2011; Elsiddig Ahmed, 2020; Elzahaby, 2021; Fonou-Dombeu et al , 2022; Francis et al , 2008; Gaio and Raposo, 2011; Ma and Ma, 2017; Mensah and Onumah, 2023; Moardi et al , 2020; Nguyen et al , 2022; Saleh et al , 2020), and CSR (Bozzolan et al , 2015; Brahem et al , 2022; Choi et al , 2013; Dang and Pham, 2022; Jacobsen, 2013; Kim et al , 2012; Mohmed et al , 2019; Muttakin et al , 2015; Rezaee et al , 2020).…”