The quality of the earnings reported by Maltese firms : an investigation

Abstract

In this study the quality of earnings reported by Maltese firms is investigated. Earnings can be managed in various ways, both up to inflate, or down to deflate the original earnings figure. The motivations for such behaviour which degrades the earnings quality are explained. Earnings management and quality of earnings are defined, how these can be evaluated is explained and evidence of academic literature on this topic is given. Various detection techniques are described. One such technique which involves tests of distribution of reported earnings and accruals is used in this study in order to test for the quality of earnings in Malta. Reference is made to a foreign study and the results for Malta are included in the nationwide rankings found in this study. Malta is ranked 27th out of 32 countries, manifesting the possible relatively high level of earnings management behaviour locally.