The Role of Accounting and Auditing in Corporate Governance and the Development of Financial Markets Around the World
Jere R. Francis
University of Missouri at Columbia
Inder K. Khurana
University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business
University of Missouri at Columbia - School of Accountancy
Asia-Pacific Journal of Accounting & Economics (APJAE), Forthcoming
For a sample of 31 countries we document that financial disclosures are more transparent and national accounting standards require timelier (accrual-based) reporting in countries with stronger investor protection. These countries also spend more on auditing enforcement and the Big Five accounting firms audit proportionately more companies in these countries. These results indicate that higher quality accounting standards and the enforcement of such standards through higher quality auditing are more likely to exist in corporate governance in countries with strong investor protection. Higher quality accounting and auditing are also positively associated with financial market development in countries whose legal systems are conducive to the protection of investors. However, we are unable to find systematic evidence that higher quality accounting and auditing alone - independent of a country's underlying investor protection regime - affects the development of financial markets.
Keywords: accounting, auditing, corporate governance, investor protection, financial markets
JEL Classification: G28, G34, K22, M41, M49, O10Accepted Paper Series
Date posted: June 16, 2003
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