The Relationship between the Level of Earnings Quality and Financial Distress Risk

Abstract

the aim of this study is to investigate the relationship between the level of earnings quality (fundamental and optional) and financial distress risk in Iranian and Iraqi listed firms; 159 and 35 numbers respectively.The research period is from 2011 to 2015 in both countries. However, to measure earnings quality, the data were used between 2008 and 2016.The results show that the level of earnings quality has no significant relationship with financial distress risk in all prediction models in Iran, except for Ohlson (1980). In Iraq, this relationship was only significant for the model of Bharath & Shumway (2008).It is for the first time that the relationship between the components of thelevel of earnings quality (fundamental and optional) and financial distress risk is accentuated. It is now implemented in Iran and Iraq with the comparison between the international data of both countries.