Are Legal Families Related to Financial Reporting Quality?

26 Pages Posted: 4 Jun 2013

See all articles by Frederick W. Lindahl

Frederick W. Lindahl

George Washington University - Department of Accountancy

Hannu Schadéwitz

University of Turku

Multiple version iconThere are 2 versions of this paper

Date Written: June 2013

Abstract

A large body of financial accounting research explores the quality of accounting in different countries. An important assumption in most of that research is that common law provides a firmer foundation for good accounting transparency than civil law. Researchers usually regress their proxy for accounting quality on an indicator variable that designates the firm's country as a common or civil law jurisdiction (along with other regressors). But what is the support for that nearly universal assumption? This study addresses that question. It traces the distinctions made by legal scholars that characterize the two ‘families’. It analyzes La Porta et al. (1998), which is the nearly universal citation to support the civil/common dummy, and assesses the design and development of research designs that use law in accounting studies. It concludes that the use of the civil/common distinction as applied in accounting studies cannot be supported, and offers suggestions for how to better investigate the ways in which the law interacts with financial reporting.

Keywords: Investor protection, Accounting quality, Common law, Civil law, Legal origin, Financial reporting

Suggested Citation

Lindahl, Frederick W. and Schadéwitz, Hannu, Are Legal Families Related to Financial Reporting Quality? (June 2013). Abacus, Vol. 49, Issue 2, pp. 242-267, 2013, Available at SSRN: https://ssrn.com/abstract=2273958 or http://dx.doi.org/10.1111/abac.12008

Frederick W. Lindahl (Contact Author)

George Washington University - Department of Accountancy ( email )

School of Business and Public Management
Washington, DC 20052
United States
202-994-5639 (Phone)
202-994-5164 (Fax)

Hannu Schadéwitz

University of Turku

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