Earnings Quality in U.K. Private Firms

65 Pages Posted: 20 May 2004

See all articles by Ray Ball

Ray Ball

University of Chicago - Booth School of Business

Lakshmanan Shivakumar

London Business School

Multiple version iconThere are 2 versions of this paper

Date Written: April 2, 2004

Abstract

UK private and public companies face substantially equivalent regulation on auditing, accounting standards and taxes. We hypothesize that private-company financial reporting nevertheless is lower quality due to different market demand, regulation notwithstanding. A large UK sample supports this hypothesis. Quality is operationalized using Basu's (1997) time-series measure of timely loss recognition and a new accruals-based method. The result is not affected by controls for size, leverage, industry membership and auditor size, or by allowing endogenous listing choice. The result enhances understanding of private companies, which are predominant in the economy. It also provides insight into the economics of accounting standards.

Keywords: Earnings quality; conservatism; loss recognition; private firms; economics of accounting standards; earnings time series; accruals.

JEL Classification: M41, K22, N24

Suggested Citation

Ball, Ray and Shivakumar, Lakshmanan, Earnings Quality in U.K. Private Firms (April 2, 2004). LBS Accounting Subject Area Working Paper No. ACCT025. Available at SSRN: https://ssrn.com/abstract=335420 or http://dx.doi.org/10.2139/ssrn.335420

Ray Ball

University of Chicago - Booth School of Business ( email )

Lakshmanan Shivakumar (Contact Author)

London Business School ( email )

Regent's Park
London, NW1 4SA
United Kingdom
+44 20 7000 8115 (Phone)
+44 20 7000 8101 (Fax)

HOME PAGE: http://faculty.london.edu/lshivakumar/

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