The relationship between product market competition and quality benefit accruals

Abstract

The environment in which a company works could potentially affect the quality of earnings in either a good or bad way. For example, rapid technological advances in computer industries can lead to an increase in useless and inappropriate products. Contrarily, some other industries are much slower to advance technologically. Therefore, in these industries, technological advance is not an important factor when measuring the quality of earnings. Firms that work with technological growth compared with companies that work in industries with nearly stable technological growth are more likely to be faced with quality of earnings issues. Statistical population of present research consisted of all firms listed on the stock exchange. With respect to the fact that we were interested in variables trend in recent 7 years, all firms listed on the stock exchange in 2005-2011 period and traded their shares in this period were considered as statistical population of the present research. Using systematic elimination method, 90 firms were selected as statistical sample. This finding is consistent with theoretical bases mentioned in “Theoretical Bases and Background” section. The research results indicate a negative relation between industry concentration and accruals. This indicates that, in order to protect their competitive advantage in choosing their procedures, firms involved in concentrated industries are after methods that have lower quality and higher profit. Results also show that by increasing the industry’s homogeneity, the company’s profit quality also increases. The industry’s homogeneity can reduce the impact of industry concentration over profit quality. There is also a significant relation between industry homogeneity and accruals quality. For a certain level of industry concentration, firms that have an offensive strategy have lower accruals quality than companies with a passive strategy.