The importance of reporting incentives: Earnings management in European private and public firms

• 成果类型: Article
• 署名作者: Burgstahler, David C.; Hail, Luzi; Leuz, Christian
• 署名单位: University of Washington; University of Washington Seattle; University of Pennsylvania
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr.2006.81.5.983
• 发表日期: 2006
• 页码: 983-1016
• 关键词: accounting earnings; corporate-ownership; ULTIMATE OWNERSHIP; INCOME MANAGEMENT; capital structure; Cash flows; LEGAL; Informativeness; performance; allocation

摘要

This paper examines how capital market pressures and institutional factors shape firms' incentives to report earnings that reflect economic performance. To isolate the effects of reporting incentives, we exploit the fact that, within the European Union, privately held corporations face the same accounting standards as publicly traded companies because accounting regulation is based on legal form. We focus on the level of earnings management as one dimension of accounting quality that is particularly responsive to firms' reporting incentives. We document that private firms exhibit higher levels of earnings management and that strong legal systems are associated with less earnings management in private and public firms. We also provide evidence that private and public firms respond differentially to institutional factors, such as book-tax alignment, outside investor protection, and capital market structure. Moreover, legal institutions and capital market forces often appear to reinforce each other.