The Relationship between Debt and Earnings Quality of Listed Companies in Market for Alternative Investment (MAI)

Abstract

This study aims to investigate earnings quality and the influence of debt on earnings quality of 51 listed companies in the Market for Alternative Investment (MAI) during 2001–2012, totally 387 company-years, by considering companies’ earnings management as measured by discretionary accrual in absolute term which is calculated by accrual model of Kothari, Leone and Wasley (2005). The findings reveal that on average listed companies in MAI had low earnings quality due to high earnings management with the median of discretionary accruals in absolute term of 14.12 percent of total assets. Additionally, the findings reveal that total debt, current debt, non-current debt, debt from financial institution and debt from non-financial institution, have positive influences on earnings quality of listed companies in MAI. That is, the overall listed companies in MAI are likely to have lower earnings management, leading to higher earnings quality, as they have more debts.