Country-Specific Factors Related to Financial Reporting and the Value Relevance of Accounting Data

34 Pages Posted: 21 Oct 1999

See all articles by Ashiq Ali

Ashiq Ali

University of Texas at Dallas - Naveen Jindal School of Management

Lee-Seok Hwang

Seoul National University - College of Business Administration

Multiple version iconThere are 2 versions of this paper

Date Written: July 1999

Abstract

Using financial accounting data from manufacturing firms in 16 countries for 1986-1995, we demonstrate that the value relevance of financial reports is lower for countries where the financial systems are bank-oriented rather than market-oriented; where private sector bodies are not involved in standard setting process; where accounting practices follow the Continental model as opposed to the British-American model; where tax rules have a greater influence on financial accounting measurements; and where spending on auditing services is relatively low. Results are robust to alternative measures of value relevance of financial accounting data, including measures based on earnings (using a regression and a hedge-portfolio approach), accruals, and earnings and book value of equity combined. We show that the extent to which earnings information is reflected in leading-period returns as compared to contemporaneous returns is greater for bank-oriented than for market-oriented countries. This feature potentially induces spurious associations between value relevance measures and financial system characteristics. Our results are robust to using value relevance measures adjusted for this confounding effect.

JEL Classification: M41, G12, G15

Suggested Citation

Ali, Ashiq and Hwang, Lee-Seok, Country-Specific Factors Related to Financial Reporting and the Value Relevance of Accounting Data (July 1999). Available at SSRN: https://ssrn.com/abstract=181279 or http://dx.doi.org/10.2139/ssrn.181279

Ashiq Ali (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 West Campbell Road, SM41
Richardson, TX 75080-3021
United States
972-883-6360 (Phone)
972-883-6811 (Fax)

HOME PAGE: http://www.utdallas.edu/~axa042200/

Lee-Seok Hwang

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

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