Comparative Loss Recognition Timeliness Between Brazilian ADR Issuers and Non Issuers and Between American and Brazilian Accounting Systems

Abstract

The article examines the differences, in terms of information quality (conditional conservatism), of the accounting reports of Brazilian ADR issuers and non issuers. We compare loss recognition timelines in the Brazilian public firms' financial statements. We also examine the demonstrations reported in the two accounting systems (BRGAAP and USGAAP), using the Reversal Transitory Components-based Model of Basu (1997) and the Accrual-based Model of Ball and Shivakumar (2005). The hypotheses consider that there are no differences in the degrees of conditional conservatism between the two groups of firms, due to contractual and institutional similarities affecting the two groups; the inexistence of incentives to modify managers' behavior by the process of cross listing; and adopting different accounting principles is not enough to motivate managers to report conservative earnings to investors. The tests confirm these hypotheses with models using panel data methods of estimation with a sample of 331 firms from 1993 to 2005. The results present low coefficients of determination and statistical significance.

Keywords: earnings quality, conservatism, loss recognition, cross listing, GAAP, ADR, emerging markets, Brazil

JEL Classification: M41, M44, M47, D82, K22, N26