Economics & Sociology

ISSN: 2071-789X eISSN: 2306-3459 DOI: 10.14254/2071-789X
Index PUBMS: f5512f57-a601-11e7-8f0e-080027f4daa0
Article information
Title: Reputation to the vicious circle of earnings quality and financial performance
Issue: Vol. 12, No 2, 2019
Published date: 06-2019 (print) / 06-2019 (online)
Journal: Economics & Sociology
ISSN: 2071-789X, eISSN: 2306-3459
Authors: Quang Linh Huynh
School of Economics and Law Tra Vinh University
Keywords: Earnings quality, financial performance, organizational reputation, a vicious circle, Vietnam, the analytic model of directed graphs
DOI: 10.14254/2071-789X.2019/12-2/22
Index PUBMS: 416193a8-ad50-11e9-bbfd-fa163e0fa1a0
Language: English
Pages: 361-375 (15)
JEL classification: G28, G32, M41

This paper analyzes how the link between earnings quality and financial performance is interplayed and decides which an originating cause within the link is. It further investigates whether that connection is mediated by organizational reputation. A survey of 194 firm-year observations of Vietnamese publicly listed companies appeared on the 50 best companies list voted by Forbes Vietnam from 2012 to 2015 discovers that earnings quality plays an originating role within the vicious linkage where earlier earnings quality is a cause of current financial performance that in turn affects subsequent earnings quality. The presence of organizational reputation partially mediates the effect of earlier earnings quality on current financial performance, but it fully mediates the effect of current financial performance on subsequent earnings quality. Therefore, executive managers and accounting researchers in the world in general and in emerging economies such as Vietnam in particular should deeply consider the vicious link between earnings quality and financial performance, and the mediation of organizational reputation when analyzing earnings performance.


1. relationship of corporate reputation with its antecedents and consequences: A meta-analytic review. Journal of Business Research, 68(5), 1105-1117.

2. Almahrog, Y., Marai, A., & Knežević, G. (2016). Earnings management and its relations with corporate social responsibility. Facta Universitatis, Series: Economics and Organization, 12(4), 347-356.

3. Baron, R. M., & Kenny, D. A. (1986). The moderator–mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of personality and social psychology, 51(6), 1173–1182.

4. Berrone, P., Surroca, J., & Tribó, J. A. (2007). Corporate ethical identity as a determinant of firm performance: A test of the mediating role of stakeholder satisfaction. Journal of Business Ethics, 76(1), 35-53.

5. Blajer-Golebiewska, A. (2014). Corporate reputation and economic performance: The evidence from Poland. Economics & Sociology, 7(3), 194-207.

6. Blajer-Gołębiewska, A. & Kozłowski, A. (2017). Financial determinants of corporate reputation: A short-term approach. Managerial Economics, 17(2), 179-201.

7. Cao, Y., Myers, L. A., & Omer, T. C. (2012). Does company reputation matter for financial reporting quality? Evidence from restatements. Contemporary Accounting Research, 29(3), 956-990.

8. Charitou, A., Lambertides, N., & Trigeorgis, L. (2007). Earnings quality and financial per formance. In European Accounting Congress.

9. Choi, B. B., Lee, D., & Park, Y. (2013). Corporate Social Responsibility, Corporate Governance and Earnings Quality: Evidence from K orea. Corporate Governance: An International Review, 21(5), 447-467.

10. Dechow, P., Ge, W., & Schrand, C. (2010). Understanding earnings quality: A review of the proxies, their determinants and their consequences. Journal of accounting and economics, 50(2-3), 344-401.

11. Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting earnings management. Accounting review, 70(2), 193-225.

12. DeFond, M. L., & Park, C. W. (1997). Smoothing income in anticipation of future earnings. Journal of Accounting and Economics, 23(2), 115-139.

13. Du, Q., & Shen, R. (2018). Peer performance and earnings management. Journal of Banking & Finance, 89, 125-137.

14. Dut, V.V. (2015). The effects of local business environments on smes' performance: empirical evidence from the Mekong delta. Asian Academy of Management Journal, 20(1), 101-112.

15. Ferry, B. G., Adebimpe, O. U., George, T. P., & Lenu, G. W. (2017). Corporate reputation and earnings quality of listed firms in Nigeria. Journal of Research in Business and Management, 5(4), 14-22.

16. Fich, E. M., & Shivdasani, A. (2007). Financial fraud, director reputation, and shareholder wealth. Journal of Financial Economics, 86(2), 306-336.

17. Fischer, P. E., & Verrecchia, R. E. (2000). Reporting bias. The Accounting Review, 75(2), 229-245.

18. Francis, J., LaFond, R., Olsson, P. M., & Schipper, K. (2004). Costs of equity and earnings attributes. The accounting review, 79(4), 967-1010.

19. Gaio, C., & Raposo, C. (2011). Earnings quality and firm valuation: international evidence. Accounting & Finance, 51(2), 467-499.

20. Gaio, C., & Raposo, C. C. (2014). Corporate governance and earnings quality: International evidence. Journal of Accounting and Finance, 14(3), 52-74.

21. Gatzert, N. (2015). The impact of corporate reputation and reputation damaging events on financial performance: Empirical evidence from the literature. European Management Journal, 33(6), 485-499.

22. Grasso, L. P., Tilley, P. A., & White, R. A. (2009). The ethics of earnings management: Perceptions after Sarbanes-Oxley. Management Accounting Quarterly, 11(1), 45-69.

23. Graham, M. E., & Bansal, P. (2007). Consumers' willingness to pay for corporate reputation: the context of airline companies. Corporate reputation review, 10(3), 189-200.

24. Hair, J.F., Black, W.C., Babin, B.J., Anderson, R.E., & Tatham, R.L. (2012). Multivariate Data Analysis. Ed, New Jersey: Pearson Prentice Hall, USA.

25. Hammond, S. A., & Slocum, J. W. (1996). The impact of prior firm financial performance on subsequent corporate reputation. Journal of Business Ethics, 15(2), 159-165.

26. Huynhб Q.L. (2015). The Mutual Relationship Between Corporate Governance and Management Accounting: Which Occurs First?. American Journal of Applied Sciences, 12(6), 403-410.

27. Huynh, Q. L. (2018). Earnings Quality with Reputation and Performance. Asian Economic and Financial Review, 8(2), 269-278.

28. Jackson, A. R. (2005). Trade generation, reputation, and sell‐side analysts. The Journal of Finance, 60(2), 673-717.

29. Johnson, W. C., Xie, W., & Yi, S. (2014). Corporate fraud and the value of reputations in the product market. Journal of Corporate Finance, 25, 16-39.

30. Kaplan, S. E., & Ravenscroft, S. P. (2004). The reputation effects of earnings management in the internal labor market. Business Ethics Quarterly, 14(3), 453-478.

31. Kinney Jr, W. R., & McDaniel, L. S. (1989). Characteristics of firms correcting previously reported quarterly earnings. Journal of accounting and economics, 11(1), 71-93.

32. Latif, K., Bhatti, A. A., & Raheman, A. (2017). Earnings quality: A missing link between corporate governance and firm value. Business & Economic Review, 9(2), 255-280.

33. Lee, C. W. J., Li, L. Y., & Yue, H. (2006). Performance, growth and earnings management. Review of Accounting Studies, 11(2-3), 305-334.

34. Le, Y., Hollenhorst, S., Harris, C., McLaughlin, W., & Shook, S. (2006). Environmental management: A study of Vietnamese hotels. Annals of Tourism Research, 33(2), 545-567.

35. Leggett, D. M., Parsons, L. M., & Reitenga, A. L. (2016). Real Earnings Management and Subsequent Operating Performance. IUP Journal of Operations Management, 15(4)б 7-32.

36. Lu, X. (2013). The Impact of Corporate Reputation on Earnings Management Decisions (Doctoral dissertation, University of Durham 2013.).

37. Luchs, C., Stuebs, M., & Sun, L. (2009). Corporate Reputation and Earnings Quality. Journal of Applied Business Research, 25(4), 47-54.

38. Liu, X., Vredenburg, H., & Steel, P. (2016). Determinants and moderators of corporate reputation: A meta-analysis. In Academy of Management Proceedings (Vol. 2016, No. 1, p. 12980). Briarcliff Manor, NY 10510: Academy of Management.

39. Lyimo, G. D. (2014). Assessing the measures of quality of earnings: Evidence from India. European Journal of Accounting Auditing and Finance Research, 2(6), 17-28.

40. Ma, H. (2000). Competitive advantage and firm performance. Competitiveness Review: An International Business Journal, 10(2), 15-32.

41. Machdar, N. M., Adler H.M.D.R., & Murwaningsari, E. (2017). The effects of earnings quality, conservatism, and real earnings management on the company’s performance and information asymmetry as a moderating variable. International Journal of Economics and

42. Martínez-Ferrero, J. (2014). Consequences of financial reporting quality on corporate performance: Evidence at the international level. Estudios de Economía, 41(1), 49-88.

43. Martínez-Ferrero, J., Banerjee, S., & García-Sánchez, I. M. (2016). Corporate social responsibility as a strategic shield against costs of earnings management practices. Journal of Business Ethics, 133(2), 305-324.

44. Martínez-Ferrero, J., & Garcia-Sanchez, I.M. (2016). Corporate Reputation as a Consequence of Financial Reporting Quality. International Management & Economics Frontiers, 1(1), 45-43.

45. Pagalung, G., & Sudibdyo, B. (2018). The Determinant Factors of Earnings Quality and Economic Consequences. EKUITAS (Jurnal Ekonomi dan Keuangan), 16(1), 105-122.

46. Perotti, P., & Wagenhofer, A. (2014). Earnings quality measures and excess returns. Journal of business finance & accounting, 41(5-6), 545-571.

47. Riahi-Belkaoui, A., & Pavlik, E.L. (1992). Accounting for Corporate Reputation. Quorum Books, Greenwood Publishing Group, Connecticut: USA.

48. Roberts, P. W., & Dowling, G. R. (2002). Corporate reputation and sustained superior financial performance. Strategic Management Journal, 23(12), 1077-1093.

49. Rodriguez-Ariza, L., Martínez-Ferrero, J., & Bermejo-Sánchez, M. (2016). Consequences of earnings management for corporate reputation: Evidence from family firms. Accounting Research Journal, 29(4), 457-474.

50. Russo, M. V., & Fouts, P. A. (1997). A resource-based perspective on corporate environmental performance and profitability. Academy of Management Journal, 40(3), 534-559.

51. Sarun, A. (2016). Corporate Governance, Earnings Quality and Firm Value: Evidence from Malaysia (Doctoral dissertation, Victoria University).

52. Schwab, K. (2017). The global competitiveness report 2017-2018. Geneva: World Economic Forum, Switzerland.

53. Sobel, M. E. (1982). Asymptotic confidence intervals for indirect effects in structural equation models. Sociological methodology, 13, 290-312.

54. Surroca, J., Tribó, J. A., & Waddock, S. (2010). Corporate responsibility and financial performance: The role of intangible resources. Strategic management journal, 31(5), 463-490.

55. Tabassum, N., Kaleem, A., & Nazir, M. S. (2014). Real earnings management and future performance. Global Business Review, 16(1), 21-34.

56. Taylor, G. K., & Xu, R. Z. (2010). Consequences of real earnings management on subsequent operating performance. Research in Accounting Regulation, 22(2), 128-132.

57. Teoh, S. H., Welch, I., & Wong, T. J. (1998). Earnings management and the long‐run market performance of initial public offerings. The Journal of Finance, 53(6), 1935-1974.

58. Warrad, L. H. (2017). The Influence of Leverage and Profitability on Earnings Quality: Jordanian Case. International Journal of Academic Research in Business and Social Sciences, 7(10), 62-81.

59. Zhatkin, Y., Gurvitš, N., & Strouhal, J. (2017). Addressing ethical matters in Ukrainian accounting practice. Economics & Sociology, 10(3), 167-178.