Is Financial Reporting Shaped by Equity Markets or by Debt Markets? An International Study of Timeliness and Conservatism

64 Pages Posted: 10 Dec 2007 Last revised: 24 Aug 2011

See all articles by Ray Ball

Ray Ball

University of Chicago - Booth School of Business

Gil Sadka

University of Texas at Dallas

Ashok Robin

Rochester Institute of Technology (RIT)

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Abstract

We hypothesize debt markets - not equity markets - are the primary influence on association metrics studied since Ball and Brown (1968). Debt markets demand high scores on timeliness, conservatism and Lev's (1989) RSQ, because debt covenants utilize reported numbers. Equity markets do not rate financial reporting consistently with these metrics, because (among other things) they control for the total information incorporated in equity prices.

Single-country studies shed little light on the relative influences of debt and equity, because their firms operate under a homogeneous reporting regime. International data are consistent with our hypothesis. This is a fundamental issue in accounting.

Keywords: reporting quality, association studies, conservatism, timeliness, international

JEL Classification: F30, G15, G18, G32, K33, M41, M44

Suggested Citation

Ball, Ray and Sadka, Gil and Robin, Ashok, Is Financial Reporting Shaped by Equity Markets or by Debt Markets? An International Study of Timeliness and Conservatism. Review of Accounting Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1067342

Ray Ball (Contact Author)

University of Chicago - Booth School of Business ( email )

Gil Sadka

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

Ashok Robin

Rochester Institute of Technology (RIT) ( email )

College of Business
Rochester, NY 14623
United States
585-475 5211 (Phone)

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