The Impact of Financial Reporting Quality on Firm Performance

Financial Reporting Quality is the faithfulness of the information conveyed by the financial reporting process. The quality of information is vital for users of financial information. This study aims to examine the impact of Financial Reporting Quality on Firm Performance in listed companies in Sri Lanka. This study uses a quantitative approach. Secondary data was obtained from listed companies' published annual financial statements over six years (2013-2018). The sample consists of 30 listed companies in Sri Lanka from all sectors except Bank, finance, and insurance sector. Thus, the number of observations summed up to 180 in total. Stratified Random sampling method was used to select the sample and the hypothesis has been tested by the random effect model using STATA. Results showed an overall significant relationship for the tested three models where Return of Assets, Return on Equity, and Market to Book Ratio were regressed against Financial Reporting Quality and control variables. However, the relationship between Financial Reporting Quality and individual financial performance indicators was insignificant. Despite the theoretical arguments and empirical findings on the impact of financial reporting quality on financial performance, the study in the Sri Lankan context showed no relationship. This may warrant further research in the area with increased sample size.