The Effect of International Institutional Factors on Properties of Accounting Earnings
University of Chicago
Massachusetts Institute of Technology (MIT) - Sloan School of Management
Rochester Institute of Technology (RIT)
University of Rochester Working Paper FR 99-12
International differences in the demand for accounting income predictably affect the way it incorporates economic income (dividend-adjusted change in market value) over time. We characterize the "shareholder" and "stakeholder" corporate governance models of common and code law countries respectively as resolving information asymmetry by public disclosure and private communication. Also, code law directly links accounting income to current payouts (to employees, managers, shareholders and governments). Consequently, code law accounting income is less timely, particularly in incorporating economic losses. Regulation, taxation and litigation cause variation among common law countries. The results have implications for security analysts, standard-setters, regulators, and corporate governance.
Number of Pages in PDF File: 49
JEL Classification: F30, M41, M44, M47working papers series
Date posted: September 15, 1999
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