The Influence of Country- and Firm-Level Governance on Financial Reporting Quality: Revisiting the Evidence

Posted: 5 Feb 2013

See all articles by Pietro Bonetti

Pietro Bonetti

University of Padova

Antonio Parbonetti

University of Padua

Michel Magnan

Concordia University - Department of Accountancy

Date Written: January 31, 2013

Abstract

Using a large sample of European firms that mandatorily adopted IFRS, this paper assesses how firm-level governance, as proxied by board attributes, and country-level enforcement interplay in affecting financial reporting quality. Financial reporting quality is assumed to have three dimensions: earnings informativeness, accruals management, and real earnings management. Three key findings emerge from our analyses. First, IFRS adoption per se does not seem to affect financial reporting quality. Second, in countries characterized by weak enforcement, strong board-level monitoring appears to enhance financial reporting quality, thus suggesting a substitutive effect between firm- and country-level governance. Third, in countries characterized by strong enforcement, firms with strong board-level monitoring exhibit a higher level of financial reporting quality than firms with weak board-level monitoring, thus suggesting that country- and firm-level governance are complementary. Overall, our findings help bridge the gap in the debate about the effects of country- and firm-level governance on the quality of financial reporting and provide further nuance on prior IFRS adoption research.

Keywords: IFRS, corporate governance, legal enforcement, financial reporting quality

JEL Classification: G14, G15, G18, G34, M41

Suggested Citation

Bonetti, Pietro and Parbonetti, Antonio and Magnan, Michel, The Influence of Country- and Firm-Level Governance on Financial Reporting Quality: Revisiting the Evidence (January 31, 2013). CIRANO - Scientific Publications 2013s-03. Available at SSRN: https://ssrn.com/abstract=2212200 or http://dx.doi.org/10.2139/ssrn.2212200

Pietro Bonetti

University of Padova ( email )

Italy

Antonio Parbonetti

University of Padua ( email )

Via del Santo 33
Padova, 35123
Italy
+39 049 8274261 (Phone)

Michel Magnan (Contact Author)

Concordia University - Department of Accountancy ( email )

Montreal, Quebec H3G 1M8
Canada

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