Managerial Ability and Earnings Quality: An International Analysis

In this paper, we use an international setting to examine an unresolved issue in the literature on the relation between managerial ability and earnings quality. We also examine whether the strength of a country's legal system impacts this relation. Using multiple measures of earnings quality and managerial ability, we report that earnings quality is negatively associated with managerial ability. We also find that a strong legal environment mitigates this negative relation. Overall, our study adds to the literature on the impact of managerial characteristics on financial reporting decisions.