| Abstract [eng] |
Often company managers tend to manipulate earnings in financial statements, and it influences investors decisions. The accounting scandals of Enron, WorldCom and Wirecard have revealed that their managers have falsified financial information: increased sales revenue, reduced costs, failed to present debt on the balance sheet, improperly capitalized assets and thus increased their value. Accordingly, such fictitious accounting records contributed to the growth of net profits and ensured the financial stability of the companies, although this did not reflect the true financial situation and the real level of operational efficiency. Based on these practical examples, it could be argued that when examining the financial statements submitted by companies, it is necessary to assess not only the amount but also the quality of earnings. The importance of the quality of earnings for companies has also been noticed. Moreover, it is argued that quality of earnings increases investor confidence, leading to a reduction in their risk. As a result, the weighted average cost of capital of companies decreases and their market value increases. Object of the research – the quality of earnings of companies in different sectors and its impact on stock returns. The aim of the research is to analyze the theoretical aspects of earnings quality and its impact on stock returns and to study the level of earnings quality of companies operating in different sectors and the impact of earnings quality on the stock returns in the Nasdaq Baltic stock market. The first part of the project presents the relevance and importance of earnings quality assessment for investors, the concept of earnings quality, the problems of its definition and evaluation. In addition, the studies of other authors showed that they examined different samples, used different methods for assessing the quality of earnings and obtained different results. Accordingly, there is a need to examine whether the use of different methods for assessing the quality of earnings leads to the same results and its effect on the shares return of companies operating in different activities. The second part of the project examines the determinants of earnings quality. It has been identified which of them result in high or low earnings quality. The methods of earnings quality assessment are also analyzed, their use in the research of other researchers is presented and their comparison is made. Finally, other empirical studies examining the impact of earnings quality on stock price and return are also analyzed. They are classified according to the results obtained. The third part of this work describes the methodology of the empirical study of the impact of the earnings quality of listed companies in the Baltic States on the shares returns. In the last part of the project, examining the level of earnings quality in each sector, it was found that the level of earnings quality differs between companies engaged in different activities. The sectors of basic materials and industrial products and consumer goods have the highest earnings quality, while the health care and utilities sectors have the lowest quality. After constructing the regression model, the impact of earnings quality on stock returns was determined by analyzing the basic materials and industrial products sector. This means that as the quality of the accruals of these companies grows the return on their shares increases. Meanwhile, the quality of earnings in other sectors that make up the Nasdaq Baltic market does not affect the return on stocks, as investors may not tend to assess the quality of earnings of these companies and do not use such information in making investment decisions. According to the empirical study of the impact of the quality of earnings on the return on shares of listed companies in the Baltic States, its limitations, further research directions and recommendations for investors and company managers are presented below. |
