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Earnings Quality in U.K. Private Firms


Ray Ball


University of Chicago

Lakshmanan Shivakumar


London Business School

April 2, 2004

LBS Accounting Subject Area Working Paper No. ACCT025

Abstract:     
UK private and public companies face substantially equivalent regulation on auditing, accounting standards and taxes. We hypothesize that private-company financial reporting nevertheless is lower quality due to different market demand, regulation notwithstanding. A large UK sample supports this hypothesis. Quality is operationalized using Basu's (1997) time-series measure of timely loss recognition and a new accruals-based method. The result is not affected by controls for size, leverage, industry membership and auditor size, or by allowing endogenous listing choice. The result enhances understanding of private companies, which are predominant in the economy. It also provides insight into the economics of accounting standards.

Number of Pages in PDF File: 65

Keywords: Earnings quality; conservatism; loss recognition; private firms; economics of accounting standards; earnings time series; accruals.

JEL Classification: M41, K22, N24

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Date posted: May 20, 2004  

Suggested Citation

Ball, Ray and Shivakumar, Lakshmanan, Earnings Quality in U.K. Private Firms (April 2, 2004). LBS Accounting Subject Area Working Paper No. ACCT025. Available at SSRN: http://ssrn.com/abstract=335420 or http://dx.doi.org/10.2139/ssrn.335420

Contact Information

Ray Ball
University of Chicago ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-5941 (Phone)
773-702-0458 (Fax)
Lakshmanan Shivakumar (Contact Author)
London Business School ( email )
Regent's Park
London, NW1 4SA
United Kingdom
+44 20 7000 8115 (Phone)
+44 20 7000 8101 (Fax)
HOME PAGE: http://faculty.london.edu/lshivakumar/
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