THE PRICING EFFECT OF EARNINGS QUALITY: EVIDENCE FROM TUNISIA

The purpose of this paper is to examine the interplay between earnings quality, information risk and stock return. Our study is motivated by the recent influential thought and conflicting empirical results on whether earnings quality is a priced factor in capital markets. Total accruals quality is used to depict earnings quality in this study that employs a sample of data drawn from the Tunisian market in 1999–2007. Asset-pricing methodology is then applied to study the effect of accruals quality on expected returns. The results provide consistent evidence that accruals quality is a priced risk factor. In fact, the average positive coefficients indicate that poor accruals quality increases expected returns.