الفهرس 
Research QuestionOnly 14 pages are availabe for public view
 |  | from | 205 |  |  |
| | | from | 205 | | |
Abstract
This research aimed at investigating the effect of information transparency on accruals quality, earnings persistence, predictability and smoothness as attributes of earnings quality. Thus, the objectives of this research were:
(1) Measure the impact of information transparency on accruals quality
(2) Measure the impact of information transparency on earnings persistence
(3) Measure the impact of information transparency on earnings predictability
(4) Measure the impact of information transparency on earnings smoothness
In order to achieve these objectives, a transparency index was developed by combining previous transparency indices used in previous studies and eliminating any repeated or irrelevant aspect which finally led to an index of 165 questions. The idea of this index was based on the firm disclosure for each piece of information represented as a question in the index or not.
The research was applied on a sample of thirty firms of different sectors, the common factor between these firms that they are listed in EGX 30. The reason for choosing EGX 30 is that the requirements for a company to be included in this index, ensures market participants that the index constituents truly represent actively traded companies.
The research was organized into five chapters as follows:
Chapter One: General Framework of the Research
This chapter presented the introduction, research problem, question, objectives, hypotheses, and brief of the methodology, variables and model used, as well as research limitations and research outline.
Chapter Two: Literature Review
This chapter presented the previous studies conducted on the research variables or related to the research topic. Each study was displayed in terms of its objectives, methodology used, and results
Chapter Three: Theoretical Background
This chapter presented for each of the main notions of this research its definitions, interpretations factors that affect it, different models used in previous studies in measuring each variable and finally the contribution of this research to literature.
Chapter Four: Research Methodology and Data Analysis
This chapter was divided into two sections. The first one explained the methodology of this research in details in terms of data Population sources of data collection, how the information transparency index is constructed and the models used to measure each dependent variable as well as the models used to test the research hypotheses. The second section displayed the findings of statistical analysis and its interpretations.
Chapter Five: Summary, Results, and Recommendations
This last chapter a summary of the research, a summing up of the results, recommendations, and suggested future research to be conducted.
5.2 Results
An information transparency index was developed and consisted of 165 question. The index was based on the idea of whether a firm discloses a certain piece of information or not. The results of measuring transparency in firms listed in EGX 30 showed great variation in terms of disclosure of information among firms. The second step was that dependent variables were measured each using a relevant model according to previous literature. Finally, the research model was applied in order to test the effect of information transparency on each of the attributes separately.
Results showed a significant relationship between information transparency and all four earnings quality attributes’ accruals quality, earnings persistence, earnings predictability, and earnings smoothness. Results also showed that information transparency as assumed by the researcher was proved to improve the quality of accruals, persistence and smoothness of earnings. On the contrary, results proved that earnings predictability deteriorates as firms become more transparent. All 4 models testing the four hypotheses of the research showed P values less than 1 % which means that there are significant relationships between transparency and the four attributes with confidence level of more than 99%.
The explanatory power of the changes in the dependent variables attributed to the changes in the transparency as the independent variable in the four models represented in R2 was around 85%, 35%, 74%, and 18% for accruals quality, earnings persistence, earnings predictability, and earnings smoothness respectively. The R2 shows that the highest effect of information transparency is on quality of accruals while the least effect is that on earnings smoothness.
This study agrees with that of (Yeh, Chen, & Wu, 2014) regarding the relation between information transparency and three of the attributes of earnings quality which are accruals quality, earnings persistence, and earnings smoothness, where both studies agreed that the more firms are transparent, the higher is the quality of its accruals and the more its earnings are persistent and smooth. While, it disagrees with this study and with that of (Lundholm & Myers, 2002) , and (Hope, 2003) , when it comes to earnings predictability.
As for earnings predictability, according to the research results, as firms adopt a more transparent philosophy, its ability to predict earnings deteriorate. On the contrary, in both studies, earnings predictability shall get enhanced as firms become more transparent as informative disclosure and transparent practices cause current returns to reflect more future earnings news. These results could be explained according to the period in which the study was conducted in the Egyptian market where it was exposed to major political changes and economic disruptions which consequently lead to significant instability in all sectors and types of business. Everything seemed vague even to board of directors and managers, and so, the more firms passed information transparently to any stakeholders, the more it was difficult for them to report predictable earnings since that firms themselves were unable to predict or assess any potential metric for any of the financial aspects they could face or any future conditions specially in years 2012 to 2015. The researcher’s argument agrees with the findings of (Kerr, Sadka, & Sadka, 2011) in which their study documented that aggregate stock returns are less informative about future earnings during illiquid periods. According (Kyle, 1985) , much of the uncertainty about a security’s value is with respect to its firm’s projected future cash flows, therefore, illiquidity is also associated with uncertainty about the firm’s future performance, and for sure the Egyptian market suffered from illiquidity during the period upon which the study was conducted.
Maybe there wasn’t extensive literature linking the same variables of this research, but other studies who based their results on one another reached same conclusions. For further explanation, (Vladu & Cuzdriorean, 2013)’s study pointed out that financial transparency contributes to the detection and reduction of earnings management practices. And other studies sated that transparent practices and increased disclosure helps in reducing earnings management and thereby enhancing quality of earnings (Hirst & Hopkins, 1998) , (Shuli, 2011) , (Lee & Lee, 2015)
It goes in parallel with the study of (Yeh, Chen, & Wu, 2014) that emphasizes the fact that firms with more efforts to convey transparent information, report higher quality earnings and with the study of (Cheung, Jiang, & Tan, 2010) that there’s a positive relationship between firms’ information transparency and their market valuation where in their study they used a transparency index to measure transparency.
5.3 Recommendations
What can be clear after this study along with the previous literature, that what matters is not only the quality of earnings, in other words, it’s not the end, it’s just means to an end, a path to more benefits and gains to all related parties, it’s a chain, bricks leading to one another for common good of everyone.
This is clear from previous studies that discussed the benefits firms can gain of reporting earnings of high quality through enhancing the quality of its attributes which can be attained by several ways where one of them is being privileged by high degree of transparency and disclosure.
Results of previous studies proved that there is a significant relationship between how investors perceive a firm’s earnings and its valuation and also that when firms are transparent, information asymmetry between firms and investor decreases. The more the parties that are important to firms such as investors and banks trust firms and their reported earnings or other information, the more benefits firms get as a result of this trust. So, as clear, studies that investigated the effect of earnings quality on firms’ different aspects such as access to debt, cost of debt, cost of equity, stock pricing, market valuation, or any other aspect where they need to be positively rated, proved that all of the previously mentioned aspects become in favor of firms as they report earnings of higher quality, and firms won’t be able to achieve such a result unless enhancing the attributes that represent criteria of quality of earnings.
So, it has become obvious that firms’ decision makers shall perceive transparency as an ideology that is at the very beginning, at same position and of same importance as well as successful management, and high profitability of business, along with other factors, such as – but not limited to - political stability, all of this leads to the welfare of markets, encourages local and foreign investment, and assures efficient allocation of resources, that can be assumed to lead to healthy markets, which even by time can affect the economy of a country as a whole specially developing ones, are the most who can feel the impact and need it. Therefore, the researcher recommends the following:
(1) Managers, and decision makers on all levels, shall encourage transparent reporting and adopt transparency when setting their strategies.
(2) Government shall legislate new laws that enforce transparency in firms beyond the conventional required disclosure.
(3) A transparency rating system shall be developed, rating firms according to an agreed upon index to high, moderate or weakly transparent.
(4) Following the previous recommendation, firms’ transparency rating shall be included in its profile when listed in the Egyptian Stock Exchange or any other institution in which its profile is evaluated.
(5) Firms shall work on enhancing the quality of accruals as well as the persistence, predictability, and smoothness of its earnings but not on the expense of earnings informativeness.
Transparency is crucial. Ease of accessibility to information is one of the main building blocks of solid markets, and transparency reduces opacity, which is the first step of corruption and inefficiency. Transparency is the foundation upon which accountability is built, it’s necessary to allow stakeholders as well as any beneficiary parties to engage in monitoring, and oversight of any co-management arrangements. In the light of this importance, uses and misuses of the term demand greater attention.
5.4 Future Research
This research aimed at assessing the effect of information transparency on certain attributes of earnings quality in the Egyptian market through firms listed in EGX 30 through years 2012 to 2017 which as mentioned before were years were the market, and the economy as a whole, suffered from a great extent of instability. So, it’s recommended to apply the study on a larger sample of the Egyptian market and in the upcoming years where it’s expected to witness much more stable conditions relative to the period when the study was conducted. Another recommendation too, is to try take the sector type into consideration in future studies since it was one of the limitations in this research because of the relatively small sample. In addition, the following research is recommended to be conducted:
(1) “Evaluating the Effect of Information Transparency on Cost of Debt”.
(2) “Does Transparency of Information affect Predictability of Earnings?”.
(3) “Studying the Effect of Accruals Quality of Information Transparency”.
(4) “Evaluating the Impact of Firm’s Transparency on Firm’s Value”.
(5) “Evaluating the Relationship between Firm’s Information Transparency and Financial Performance.