Earnings Quality and Market Efficiency: Evidence from Romanian Capital Market

This chapter analyzes the role of the financial information quality in the streamlining of the Romanian capital market. The study is carried out at the level of the entities that are listed on the regulated section of the Bucharest Stock Exchange, the sample being created by excluding the entities with financial activities. The use of the accounting criteria for the evaluation of the accounting data quality, respectively, earnings quality, earnings smoothing, and earnings predictability has allowed the identification of a significant qualitative level of reports issued by the entities that are part of the chosen sample. By introducing, as control variables, of the specific of accounting standards based on which the financial statements were issued we once again confirmed the robustness of the reached results. The Romanian capital market is characterized by a low level of performance, a featured that is estimated through the Jensen index, as a result of the difference between the investors’ expectations and accomplishments, regarding the yield of the owned titles. The tested determinist relationship between the indicators of the two informational dimensions (accounting and capital market) identifies a significant influence of the quality of the accounting on the efficiency level of the capital market.