Are High-Quality Earnings Useful for Voting Shareholders? Evidence from the Top Executive Director Election in Japan

This study provides evidence of how earnings quality affects the relationship between a firm’s earnings performance and the voting results on the top executive director (TED) election. When a firm reports low-quality earnings, it would be difficult for shareholders to conclude the manager’s competence based on earnings performance. Accordingly, this paper hypothesizes that the approval rate for the TED election would be less sensitive to earnings performance when the firm reports low-quality earnings. Using a large sample of TED elections of Japanese listed firms, this paper finds that the approval rate of the TED election is positively associated with earnings performance, but low earnings quality weakens this relationship. These findings imply that low accounting quality makes earnings information less useful for voting shareholders to evaluate the management. Also, this paper finds that the moderating effect of earnings quality is more pronounced for firms with high institutional ownership.

This version: July 2021

Hitotsubashi University Center for Financial Research

2021-07

English(eng)

technical report

VoR

16

Working Paper Series / Hitotsubashi University Center for Financial Research

https://hdl.handle.net/10086/71965