TESTING THE IMPACT OF EARNINGS QUALITY ON STOCK RETURNS: AN ANALYTICAL STUDY IN A SAMPLE OF ARAB FINANCIAL MARKETS

Abstract

This study delves into the correlation between earnings quality and stock returns within Arab financial markets. Through an examination of data encompassing 115 companies listed on the stock exchanges of Iraq, Saudi Arabia, Kuwait, Qatar, Bahrain, and Dubai over the period spanning 2010 to 2021, and employing the weighted least squares method, the study investigates how six metrics of earnings quality impact stock returns. The findings we have arrived at underscore the pronounced significance of earnings quality as reflected in the financial reports of companies. This influence has a bearing on investor confidence levels and, consequently, stock returns. Enhanced transparency in accounting practices can contribute to mitigating the volatility of stock returns, thereby bolstering the appeal for long-term investors. Moreover, the availability of dependable insights into forthcoming performance assumes a pivotal role in shaping investment decisions and the evaluation of companies. As a result, this research forms a foundational basis for making well-informed investment selections grounded in accurate earnings quality data. It sheds illuminating insights on the intricate interplay between earnings quality and the dynamics of stocks within the context of Arab financial markets.