This study explores the effects of investor-protection on reported earnings quality assessed on the
basis of four accounting-based earnings attributes (accruals quality, earnings persistence, earnings
predictability, and earnings smoothness). We test the hypothesis that favorable values of each earnings
attribute (considered individually) occur in countries whose institutional characteristics provide
relatively strong investor-protection. The results based on K-means cluster analysis of institutional
characteristics are mixed. Earnings smoothness is less prevalent in strong investor-protection
countries, as hypothesized. However both accruals quality and earnings predictability are better in
countries whose institutional characteristics are relatively weak. No association is found between
investor-protection and earnings persistence, except that countries with low ownership concentration
appear to have high earnings persistence. The results based on regression analysis are consistent with
those based on the cluster analysis. These results imply that conclusions about the impact of
institutional characteristics on earnings quality depend on how earnings quality is measured.
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