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The Effect of International Institutional Factors on Properties of Accounting Earnings

University of Rochester Working Paper FR 99-12

49 Pages Posted: 15 Sep 1999  

Ray Ball

University of Chicago - Booth School of Business

S.P. Kothari

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Ashok Robin

Rochester Institute of Technology (RIT)

Date Written: August 1999

Abstract

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.

JEL Classification: F30, M41, M44, M47

Suggested Citation

Ball, Ray and Kothari, S.P. and Robin, Ashok, The Effect of International Institutional Factors on Properties of Accounting Earnings (August 1999). University of Rochester Working Paper FR 99-12. Available at SSRN: https://ssrn.com/abstract=176989 or http://dx.doi.org/10.2139/ssrn.176989

Ray Ball (Contact Author)

University of Chicago - Booth School of Business ( email )

S.P. Kothari

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E52-325
Cambridge, MA 02142
United States
617-253-0994 (Phone)
617-253-0603 (Fax)

Ashok Robin

Rochester Institute of Technology (RIT) ( email )

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

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