Earnings quality, earnings management and religiosity: A literature review

Objective: The variety of proxies for earnings quality (EQ) induces us to concentrate on the review of existing literature. We identify the research gap related to the link between moral attitudes and behaviour proxied by religiosity and the EQ. Our objective is to assess the relationship between the EQ and the religiosity and hence build the foundation for future empirical research. Our main thesis is that religiosity influences managerial behaviour, thus potentially may have an impact on earnings management. Research Design & Methods: The research method is based on critical and synthetic literature review. We conducted keywords based review of accounting literature related to earnings quality, earnings management and proxies for religiosity. Recommendations for future empirical research are presented. Findings: There is no clear and widely accepted definition of the elusive construct of EQ. There exist over a dozen measures of earnings quality but none of them is universal. They measure various aspects of the broad notion of the EQ. From a decision-usefulness perspective, it seems that further research should focus on discretionary accruals, but the existing literature does not show without any ambiguity the superiority of any model for these accruals. Religion and religiosity influence managerial behavior, but the impact of religion on earnings management differs across religion denominations. The proxy for religious commitment is a serious challenge for empirical research, either in the case of single- or multi-country and multi-religion settings. Contribution & Value Added: Investigation of the measures and determinants of earnings quality gives insight into the relationship between earnings management behavior and religiosity.