The joint effect of investor protection and Big 4 audits on earnings quality around the world

• 成果类型: Article
• 署名作者: Francis, Jere R.; Wang, Dechun
• 署名单位: University of Missouri System; University of Missouri Columbia; University of Nebraska System; University of Nebraska Lincoln
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1506/car.25.1.6
• 发表日期: 2008
• 页码: 157-+
• 关键词: asymmetric timeliness; accounting standards; VALUE RELEVANCE; management; LEGAL; conservatism; environments; incentives; valuation; income

摘要

The association of a country's investor protection regime with the quality of reported earnings is examined for a large sample of firms from 42 countries. Three attributes of earnings are evaluated: the magnitude of signed abnormal accruals, the likelihood of reporting losses, and accounting conservatism (timely loss recognition). We find that earnings quality increases for firms with Big 4 auditors when a country's investor protection regime gives stronger protection to investors; specifically, signed abnormal accruals are smaller, there is a greater likelihood of reporting losses, and accounting conservatism is greater. In contrast, earnings of firms with non-Big 4 auditors are largely unaffected by different investor protection regimes. The study adds to a growing body of research showing that accounting practices are influenced by a country's institutions. However, our results differ from prior studies by demonstrating that country-level effects on earnings quality are mediated by audit enforcement and, in particular, the incentives of Big 4 auditors to perform higher quality audits in countries with stricter investor protection regimes.