Legal Environment, Accounting Information, Auditing and Information Intermediaries: Survey of the Empirical Literature  

Oleh:

Habib, Ahsan

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: Journal of Accounting Literature vol. 2007 no. 26 (2007), page 001-075.
Topik: Public Sector Accounting; PSA; Socio-Economic Characteristics; Accounting Regime; Accounting Information; Financial Analysts; Anglo-Saxon
Fulltext: JAL 07 26 001.pdf (6.44MB)

Isi artikel

There is a large body of empirical research in accounting on the role of legal protection in developing high quality accounting information. This survey includes both published and working papers since 1997 that examine this relationship using data from more than one country. Although many studies prior to LaPorta et al. [1997] examined the financial reporting environment in more than one country [e.g., Alford et al., 1993], these studies were hindered by not having access to the LaPorta et al. [1997] data, which enabled accounting researchers to explicitly consider the impact of the legal environment. Nevertheless, a brief review of some important research published before 1997 in a cross-country setting is provided in order to make this survey complete. Furthermore, single country references have also been provided when required to benchmark the international result against established results. The paper is organized as follows. Section II provides a detailed theoretical framework based on Bushman and Smith [2001] to delineate the interaction between socio-economic characteristics and accounting regime and how this interaction could affect economic performance. This section also sketches out the role of legal protection in generating high quality accounting regime. Section III presents the cross-country differences in the quality of accounting information as influenced by the legal system of the countries. The properties of accounting information considered are, (i) value relevance of accounting information; (ii) corporate disclosure practices; (iii) earnings management; and (iv) reporting conservatism. Section IV deals with the cross-country empirical evidence on the role of financial analysts and how their activities differ based on the legal origin of the countries. This is important because the strength of a country's financial analyst community depends on the intensity of the demand for their services; and legal protection of outside investors plays a strong role in developing such a demand. Section V presents evidence on the role of auditing in an international context. Although the role of auditing is generally discussed in the context of strong legal protection environment of the Anglo-Saxon countries, the role of auditing, particularly, brand name auditor is much less understood in countries with weak legal environment. Section VI reviews the empirical evidence on the link between accounting information quality and economic performance. Finally, Section VII concludes with implications.

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