Corporate Reporting Awards and Financial Reporting Quality

Abstract

Choosing to participate in corporate reporting awards may be an efficient way for companies to signal their earnings quality or other positive reporting qualities such as transparency. This study investigates the link between corporate reporting awards (CRA) and financial reporting quality. We explore whether financial performance and earnings quality (i.e. accrual quality) predict the choice to participate in CRA and whether earnings quality predicts winning versus losing firms. We find that firms with stronger financial performance are more likely to participate in CRA. Further firms with higher earnings quality, who arguably are more likely to transparently report earnings, are significantly more likely to participate in CRA. However, we find no evidence that firms with higher earnings quality are more likely to win an award than other participants. This suggests that the qualitative criteria applied by the judges to distinguish winners from participants are not a substitute for measures of accruals quality and users of reporting award results should not view winning the awards as a reliable signal of earnings quality.

Keywords: reporting awards; financial reporting quality; earnings quality; earnings transparency