The Role of Financial Ratios in Explaining Information Quality Using the Factor Analysis Approach

Iranian Journal of Accounting, Auditing and Finance

مقاله 1، دوره 7، شماره 1 - شماره پیاپی 22، فروردین 2023، صفحه 1-21   

نوع مقاله: Original Article

شناسه دیجیتال (DOI): 10.22067/ijaaf.2023.42230.1090

نویسندگان

Akram Karimi¹؛ Roya Darabi^{* 2}؛ Mohammad Reza Poorfakharan¹؛ Hossein Moghadam¹

¹Accounting Department,Qom Branch,Islamic Azad University,Qom,Iran

²Department of Accounting, South Tehran Branch, Islamic Azad University, Tehran, Iran

چکیده

This study aims to investigate and predict information quality ranking using factor analysis and artificial intelligence in firms listed on the Tehran Stock Exchange for nine years from 2011 to 2019. The independent variable used in this study is the financial criteria of the firm, and the dependent variable is the quality measurement criteria of accounting information, in which all criteria have been converted into a single variable according to the factor analysis method. The present study is considered empirical accounting research, and the artificial intelligence method has been used to test the research hypotheses. The results indicate that according to the variable selection method of artificial intelligence, neighbourhood analysis among performance variables, including "Accounts receivable to sales ratio criteria", "Firm size", "Financial risk", "Current assets to total assets ratio", and "Cost to Sales ratio ", firms have the highest correlation with information quality rating. Other results indicate that linear and nonlinear artificial intelligence methods can predict accounting information firms' quality ratings on the Tehran Stock Exchange. Due to the importance of financial information quality in financial reporting, and innovation of the present study is the simultaneous use of all information quality criteria and artificial intelligence to examine research hypotheses

کلیدواژه‌ها

Artificial Intelligence؛ Factor Analysis؛ Financial Criteria؛ Information Quality

مراجع

1. Abdelraheem, A., Hussaien, A., Mohammed, M and Elbokhari, Y. (2021). The effect of information technology on the quality of accounting information. Accounting, 7(1), pp. 191-196. DOI:10.5267/j.ac.2020.9.017
2. Barth, M. E., and Clinch, G. (2009). Scale effects in capital markets‐based accounting research. Journal of Business Finance & Accounting, 36(3‐4), pp. 253-288. http://dx.doi.org/10.2139/ssrn.201228
3. Barth, M. E., Beaver, W. H., and Landsman, W. R. (2001). The relevance of the value relevance literature for financial accounting standard setting: another view, Journal of Accounting and Economics, 31(1-3), pp. 77-104. https://doi.org/10.1016/S0165-4101(01)00019-2
4. Barth, M.E., Li, K. and McClure, C. (2022). Evolution in Value Relevance of Accounting Information. Stanford University Graduate School of Business Research Paper. Working Paper 3512 pp. 17-24. http://dx.doi.org/10.2139/ssrn.2933197
5. Borek, A., Parlikad, A. K., Woodall, P., and Tomasella, M. (2014). A risk based model for quantifying the impact of information quality. Computers in Industry, 65(2), pp. 354-366. https://doi.org/10.1016/j.compind.2013.12.004
6. Boubaker, S., Houcine, A., Ftiti, Z., and Masri, H. (2018). Does Audit Quality Affect Firms’ Investment Efficiency?. Journal of the Operational Research Society, 69 (10), pp. 1688-1699. DOI: 10.1080/01605682.2018.1489357.
7. Bouwman, C. H. (2014), Managerial optimism and earnings smoothing. Journal of Banking & Finance, 41, pp. 283-303. https://doi.org/10.1016/j.jbankfin.2013.12.019
8. Brown, C., and Abraham, F. (2012). Sum of Perpetuities Method for Valuing Stock Prices, Journal of Economic Insight (formerly the Journal of Economics (MVEA)), Missouri Valley Economic Association, 38(1), pp. 59-72. https://ideas.repec.org/a/mve/journl/v38y2012i1
9. Butt, M. N., Baig, A. S. and Seyyed, F. J. (2021). Tobin’s Q approximation as a metric of firm performance: an empirical evaluation. Journal of Strategic Marketing, pp. 1-17. https://doi.org/10.1080/0965254X.2021.1947875
10. Calderon, T.G. (1999). Neural networks and preliminary information risk assessment in an auditing environment. Accounting Enq Research Journal, 8(2). pp. 243-97
11. Caskey, J. A. (2009). Information in equity markets with ambiguity-averse investors. Review of Financial Studies, 22( 1), pp. 3595–3627. https://doi.org/10.1093/rfs/hhn062.
12. Chen, A., and Gong, J. J. (2019). Accounting comparability, financial reporting quality, and the pricing of accruals. Advances in accounting, 45, A. 100415. https://doi.org/10.1016/j.adiac.2019.03.003
13. Cheng, P., Man, P., and Yi, C. H. (2013). The impact of product market competition on earnings quality. Accounting and Finance Association of Australia and New Zealand, 53(1), pp. 137-162
14. Cohen, D. A. (2008). Does information risk really matter? An analysis of the determinants and economic consequences of financial reporting quality. Asia-Pacific Journal of Accounting and Economics, 15(2), pp. 69-90. https://doi.org/10.1080/16081625.2008.9720812
15. Core, J. E., Guay, W. R. and Verdi, R. (2008). Is Accruals Quality a Priced Risk Factor? Journal of Accounting and Economics, 46(1), pp. 2–22. https://doi.org/10.1016/j.jacceco.2007.08.001
16. Dang, N. H., Hoang, T. V. H., and Tran, M. D. (2017). The relationship between accounting information in the financial statements and the stock returns of listed firms in Vietnam stock exchange. International Journal of Economics and Finance, 9(10), pp. 1-10. https://doi.org/10.5539/ijef.v9n10p1
17. Dechow, P., Ge, W., and Schrand, C. (2010). Understanding earnings quality: A review of the proxies, their determinants and their consequences. Journal of accounting and economics, 50(2-3), pp. 344-401. https://doi.org/10.1016/j.jacceco.2010.09.001.
18. Delen, D., Kuzey, C., and Uyar, A. (2013). Measuring firm performance using financial ratios: A decision tree approach. Expert systems with applications, 40(10), pp. 3970-3983. https://doi.org/10.1016/j.eswa.2013.01.012
19. Demirguc‐Kunt, A., Detragiache, E., and Merrouche, O. (2013). Bank capital: Lessons from the financial crisis. Journal of Money, Credit and Banking, 45(6), pp. 1147-1164. https://www.jstor.org/stable/23463595
20. Dhieux, A., Severin, E., and Vigneron, L. (2015). Does Accounting Information Quality Matter For SMES Use of trade credit? University of valenciennes. Valenciennes, France. https://hal.archives-ouvertes.fr/hal-01188869
21. Easley, D., and O’Hara, M. (2004). Information and the Cost of Capital. The Journal of Finance, 59(4), pp. 1553-1583. https://www.jstor.org/stable/3694871
22. Elaoud, A., and Jarboui, A. (2017). Auditor Specialization, Accounting Information Quality and Investment Efficiency. Research in International Business and Finance, 42, pp. 616-629. https://doi.org/10.1016/j.ribaf.2017.07.006
23. Espinosa, M., Tapia Torres, M. Á. and Trombetta, M. (2005). Disclosure and liquidity. Business Economics Series. International Review of Economics & Finance, 14(1), pp. 81-103. http://www.SSRN.com
24. Filip, A., and Raffournier, B. (2014). Financial crisis and earnings management: The European evidence. The International Journal of Accounting, 49(4), pp. 455-478. https://doi.org/10.1016/j.intacc.2014.10.004
25. Francis, J., LaFond, R., Olsson, P. and Schipper, K. (2005). The market pricing of accruals quality. Journal of Accounting and Economics, 39(2), pp. 295-327. https://doi.org/10.1016/j.jacceco.2004.06.003
26. Freeman, R., Ohlson, J., and Penman, S. (1982). Book rate-of-return and the prediction of earnings changes. Journal of Accounting Research, 20(2), pp. 639-653. https://doi.org/10.2307/2490890
27. Frost, C. and Pownall, G. (1994). Accounting Disclosure Practices in the United States and the
United Kingdom. Journal of Accounting Research, 32(1), pp. 75-102. https://doi.org/10.2307/2491388
28. Givoly, D. and Hayn, C. (2000). The changing time-series properties of earnings, cash flows and accruals: has financial reporting become moreconservative?. Journal of accounting and economics, 29(3), pp. 287–320. https://doi.org/10.1016/S0165-4101(00)00024-0
29. Gombola, M. J., Ho, A. Y. F., and Huang, C. C. (2016). The effect of leverage and liquidity on earnings and capital management: Evidence from US commercial banks. International Review of Economics & Finance, 43, pp. 35-58. https://doi.org/10.1016/j.iref.2015.10.030
30. Gordon, L. A., Loeb, M. P. and Tseng, C. Y. (2009). Enterprise risk management and firm performance: A contingency perspective. Journal of accounting and public policy, 28(4), pp. 301-327. https://doi.org/10.1016/j.jaccpubpol.2009.06.006
31. Gupta, V. K., and Batra, S. (2016). Entrepreneurial orientation and firm performance in Indian SMEs: Universal and contingency perspectives. International Small Business Journal, 34(5), pp. 660-682. https://doi.org/10.1177/0266242615577708
32. Harris, C., and Roark, S. (2019). Cash flow risk and capital structure decisions. Finance Research Letters, 29, pp. 393-397. https://doi.org/10.1016/j.frl.2018.09.005.
33. Huang, K., Lao, B., and McPhee, G. (2020). Internal information quality and patent‐related innovation. Journal of Business Finance & Accounting, 47(3-4), pp. 489-518. https://doi.org/10.1111/jbfa.12439.
34. Hutton, A. P., Marcus, A. J., and Tehranian, H. (2009). Opaque financial reports, R2, and crash risk. Journal of Financial Economics, 94(1), pp. 67-86. https://doi.org/10.1016/j.jfineco.2008.10.003
35. Indriyanto, E. (2021). Determinants of Financial Statement Fraud: Research Fraud Diamond Theory (Empirical Study on Manufacturing Company listed on the Stock Exchange). Psychology and Education, 58(1), pp. 302-308. https://doi.org/10.17762/pae.v58i1.776
36. Insana, A. (2022). Does systematic risk change when markets close? An analysis using stocks' beta. Economic Modelling 109, A. 105782. https://doi.org/10.1016/j.econmod.2022.105782
37. İskenderoğlu, Ö. and Karadeniz, E. (2022). Determinants of price to earnings ratio: Evidence from Turkish tourism companies. Journal of Tourism Theory and Research, 8(1), pp. 1-4. https://doi.org/10.24288/jttr.1027187
38. Iyke, B. N. and Ho, S. Y. (2021). Stock return predictability over four centuries: The role of commodity returns. Finance Research Letters, 40, A. 101711. https://doi.org/10.1016/j.frl.2020.101711
39. Jaggi, B., and Leung, S. (2007). Impact of family dominance on monitoring of earnings management by audit committees: Evidence from Hong Kong. Journal of International Accounting, Auditing and Taxation, 16(1), pp. 27-50.
https://doi.org/10.1016/j.intaccaudtax.2007.01.003
40. Kariyawasam, A. H. N. (2014). Impact of management control systems on the return on sales of manufacturing companies in Sri Lanka. Journal of Business and Retail Management Research, 8(2). pp. 110-118.
41. Kayhan, E. N. (2021). Financial Frauds and Governments' Role. Working paper. Turkey. https://doi.org/10.13140/RG.2.2.33312.92166
42. Khoufi, N. (2020). Accounting Information Quality and Investment Decisions in the Emerging Markets. Frontiers in Management and Business, 1(1), pp. 16-23. https://doi.org/10.25082/FMB.2020.01.004
43. Kim, D., and Qi, Y. (2010). Accounting Information Quality, Stock Returns, and Macroeconomic Conditions. 85(3), pp. 937-97. https://www.jstor.org/stable/27802676
44. Lambert, R and Verrecchia, R. (2010). Cost of capital in imperfect competition settings, Working Paper, University of Pennsylvania. U.S.
45. Langemeier, L. N. (1996). Financial Ratios Used in Financial Management. Department of Agricultural Economics. Kansas State University. Manhattan, Kansas
46. Le Guyader, L. P. (2020). Artificial intelligence in accounting: GAAP's “FAS133”. Journal of Corporate Accounting & Finance, 31(3), pp. 185-189. https://doi.org/10.1002/jcaf.22407
47. Le, H. T. T., Vo, X. V., and Vo, T. T. (2021). Accruals quality and the cost of debt: Evidence from Vietnam. International Review of Financial Analysis, 76, A. 101726. https://doi.org/10.1016/j.irfa.2021.101726
48. Leopold A., Bernstein, and John J. Wild. (2000). Analysis of Financial Statements. McGraw-Hill Education, New York, United States, pp. 2000 - 529
49. Lin, J. W., and Hwang, M. I. (2010). Audit quality, corporate governance, and earnings management: A meta‐analysis. International journal of auditing, 14(1), pp. 57-77. https://doi.org/10.1111/j.1099-1123.2009.00403.x
50. Linda, R. (2022). Pengaruh Current Ratio, Debt To Asset Ratio, Total Asset Turnover, Return On Asset, Return On Equity Dan Net Earnings Margin Terhadap Perubahan Laba. Management Studies and Entrepreneurship Journal (MSEJ), 3(1), pp. 159-168. https://journal.yrpipku.com/index.php/msej/article/view/401
51. Lipe, R. (1990). the relation between stock returns and accounting alternative information, The Accounting Review, 65(1), pp. 49-71. https://www.jstor.org/stable/247876
52. Lo, K. (2008). Earnings management and earnings quality. Journal of accounting and economics, 45(2-3), pp. 350-357. https://doi.org/10.1016/j.jacceco.2007.08.002
53. Luthan, E., and Satria, I. (2016). The effect of good corporate governance mechanism to earnings management before and after IFRS Convergence. Procedia-Social and Behavioral Sciences, 219, pp. 465-471. https://doi.org/10.1016/j.sbspro.2016.05.021
54. Ng, J. (2011). The effect of information quality on liquidity risk. Journal of accounting and economics, 52(2-3), pp. 126-143. https://doi.org/10.1016/j.jacceco.2011.03.004
55. Ningtias, D. E., Shonhadji, N. (2018). The Effect of Political Costs, Risk Litigation, Investor Protection Debt to Equity Ratio and Quality Audit Committee on the Quality of Accounting Information. Advanced Science Letters, 24 (7), pp. 4878-4881. https://doi.org/10.1166/asl.2018.11222
56. Li, N. (2017) performance measures, wealth created for shareholders and EBITDA on market value. Journal of accounting research. 54( 4), pp. 1149-1186
57. Nyathi, K. A., Nyoni, T., Nyoni, M., and Bonga, W. G. (2018). The role of accounting information in the success of small & medium enterprises (SMEs) in Zimbabwe: A case of Harare. Journal of Business and Management, 1(1), pp. 10-15.
https://ssrn.com/abstract=3114042
58. Pástor, Ľ. and Pietro, V. (2003). Stock valuation and learning about earningsability. The Journal of Finance, 58(5), pp. 1749-1789. https://doi.org/10.1111/1540-6261.00587
59. Penman, S. H. and Penman, S. H. (2010). Financial statement analysis and security valuation. New York: McGraw-Hill/Irwin, 4th edition. New York, U.S.
60. Perdana, D. (2018). Accounting Information Quality and Capital Investment Choice in the Governance Perspective–an Indonesian Evidence. International Journal of Business Management and Economic Research, 9(2), pp. 236-243.
61. Rosipal, R. and Trejo, L. J. (2001). Kernel partial least squares regression in reproducing kernel Hilbert space. Journal of machine learning research, 1(1), pp. 97-123. https://doi.org/10.1162/15324430260185556
62. Shamala, P., Ahmad, R. and Yusoff, M. (2013). A conceptual framework of info structure for information security risk assessment (ISRA). Journal of Information Security and Applications, 18(1), pp. 45-52. https://doi.org/10.1016/j.jisa.2013.07.002
63. Shao, S., Stoumbos, R. and Zhang, X. F. (2019). The power of accounting information inexplaining stock returns, Review of Accounting Studies. 26, pp. 1249–1289. https://doi.org/10.1007/s11142-020-09572-7
64. Susanto, A., (2016). What Factors Influence the Quality of Accounting Information?. International Journal of Applied Business and Economic Research. 13(6). pp. 3995- 4014
65. Tanha, H. and Dempsey, M. (2015). The asymmetric response of volatility to market changes and the volatility smile: Evidence from Australian options, Research in International Business and Finance, (34), pp. 164–176. https://doi.org/10.1016/j.ribaf.2015.02.003
66. Tran, L. T. H. (2022). Reporting quality and financial leverage: Are qualitative characteristics or earnings quality more important? Evidence from an emerging bank-based economy. Research in International Business and Finance, 60, A. 101578. https://doi.org/10.1016/j.ribaf.2021.101578
67. Wardani, D. K., and Nugroho, S. P. (2018). The Impact of Information Technology on Financial Statement Quality. A Moderating Role of Internal Control System. 1st International Conference on Advance & Scientific Innovation, pp. 10–15. https://doi.org/10.4108/EAI.23-4-2018.2277603
68. Westerholm, M. (2011). On the Pricing Effect of Earning Quality. Unpublished Master's Thesis Report, Aalto University, School of Economics. Espoo, Finland. www.aaltouniversity.com
69. Wiguna, S. and Murwaningsari, E. (2022). The Effect of Systematic Risk, Operating Cash Flow and Growth Opportunities on Future Earnings Response Coefficients (FERC), Working Capital as A Moderation Variable. International Journal of Social and Management Studies, 3(2), pp. 34-45. https://doi.org/10.5555/ijosmas.v3i2.111
70. Xing, X. and Yan, S. (2019). Accounting information quality and systematic risk. Review of Quantitative Finance and Accounting, 52(1), pp. 85-103. https://doi.org/10.1007/s11156-018-0703-z
71. Zhai, J. and Wang, Y. (2016). Accounting information quality, governance efficiency and capital investment choice. China Journal of Accounting Research, 9(4), pp. 251-266. https://doi.org/10.1016/j.cjar.2016.08.001