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

36 Pages Posted: 10 Nov 2016

See all articles by Pietro Bonetti

Pietro Bonetti

University of Navarra, IESE Business School

Michel Magnan

Concordia University - Department of Accountancy

Antonio Parbonetti

University of Padua

Date Written: October/November 2016

Abstract

This paper examines how firm‐level governance and country‐level governance interplay in shaping financial reporting quality. Using IFRS adoption as a source of variation in firms’ reporting discretion, and a large sample of European firms that mandatorily switch to the new set of standards, we find that in countries with low enforcement and weak oversight over financial reporting, only firms with strong board‐level corporate governance mechanisms experience an increase in financial reporting quality, consistent with firm‐ and country‐level governance mechanisms being substitutes. However, in countries with high enforcement and strict oversight over financial reporting, firms with either strong or weak board‐level governance mechanisms experience an increase in financial reporting quality, even if the increase is larger for the former group. Overall, our findings indicate that in the debate about the effects of governance on the quality of financial reporting, it is important to consider both country‐ and firm‐level corporate governance mechanisms.

Keywords: corporate governance, legal enforcement, financial reporting quality, accounting regulation

Suggested Citation

Bonetti, Pietro and Magnan, Michel and Parbonetti, Antonio, The Influence of Country‐ and Firm‐Level Governance on Financial Reporting Quality: Revisiting the Evidence (October/November 2016). Journal of Business Finance & Accounting, Vol. 43, Issue 9-10, pp. 1059-1094, 2016. Available at SSRN: https://ssrn.com/abstract=2867184 or http://dx.doi.org/10.1111/jbfa.12220

Pietro Bonetti (Contact Author)

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

Michel Magnan

Concordia University - Department of Accountancy ( email )

Montreal, Quebec H3G 1M8
Canada

Antonio Parbonetti

University of Padua ( email )

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

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