The role of stock exchange efficiency in earnings quality: Evidence from the MENA region

This paper examines the association between stock exchange efficiency and the quality of reported earnings for publicly listed firms from 16 MENA countries between 2001 and 2010. The study shows that there is a positive association between stock exchange efficiency and the quality of reported earnings which is robust to potential endogeneity concerns. Meanwhile, the strength of this relationship is not affected by the other exogenous factors (i.e. investor protection, legal origin, economic and political shocks). These results are robust to the inclusion of industry or country fixed effects, exclusion of oil industry, and the use of alternative measures of earnings quality. The study contributes to the extant literature on expanding the definition of the stock exchange efficiency that goes beyond information efficiency. Further, as countries across MENA region are going through reforms, then a study of the influence of such reforms on stock exchange efficiency and earnings quality provides insights in the factors driving stock exchange efficiency in these countries.