COVID-19 Pandemic and Accounting Quality

This paper examines the relation between the COVID-19 pandemic and the quality of accounting information. Specifically, the paper investigates the differences in accounting quality proxied by accruals earnings management during the pre-COVID-19 and COVID-19 pandemic periods. And the differences in accounting quality between firms disclosing and not disclosing the uncertainty about COVID-19.

To estimate accruals earnings management, this paper uses the performance-adjusted discretionary accruals model suggested by Kothari et al. (2005). The multivariate regression analysis incorporates data from the pre-pandemic(2015-2019) and the pandemic(2020-2021).

According to the analysis results, this paper finds that the quality of accounting information deteriorates during the pandemic period than before. Besides, this paper finds that deteriorated accounting quality is more pronounced for firms not disclosing the uncertainty about COVID-19 than firms disclosing the uncertainty. During the pandemic, firms experiencing sales decreases exhibit a stronger tendency for deteriorated accounting quality than firms experiencing sales declines.

This paper also reveals that the probability of recognization of asset impairment increased during the pandemic than before, and increased firms disclosed the uncertainty than firms not disclosed the uncertainty.