THE RELATION BETWEEN PERCEIVED ACCOUNTING QUALITY AND ECONOMIC CHARACTERISTICS OF THE FIRM

This paper examines security analysts' perceptions of firms' accounting quality in an effort to understand how differences in accounting quality are related to observable accounting characteristics. The results suggest accounting quality is systematically related to important characteristics of earnings and several other accounting characteristics of the sample firms. Also, the results provide evidence that earnings announcements from firms with relatively high accounting quality produce larger response coefficients per unit of unexpected earnings than their low quality counterparts. The empirical evidence suggests analysts' judgements of relative accounting quality differentiate firms in an economically relevant way.