Article2015

Product Market Competition, Legal Institutions, and Accounting Conservatism

In-Mu G. Haw · Simon S. M. Ho · Yuansha Li · Feida Frank Zhang

28 citations0/0 files storedJournal of International Accounting Research

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Auditing, Earnings Management, Governance Accounting Theory and Financial Reporting Accounting and Organizational Management

Abstract

ABSTRACT In this study, we examine product market competition's role in shaping accounting conservatism in an international setting. Using a large dataset from 38 countries, we find evidence that product market competition is positively associated with accounting conservatism in countries with strong legal institutions, but not in countries with weak legal institutions. Moreover, the positive association is significantly more pronounced in countries with high-quality financial reporting environments comprising a higher earnings quality, more frequent and greater disclosure practices, and the more stringent enforcement of insider trading regulations. Our empirical findings suggest that product market competition and strong legal institutions jointly drive accounting conservatism.

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References

1998Law and Finance 2008Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches 1985Positive Accounting Theory 2003Earnings management and investor protection: an international comparison 1997The conservatism principle and the asymmetric timeliness of earnings1 2000The information content of stock markets: why do emerging markets have synchronous stock price movements?2000The effect of international institutional factors on properties of accounting earnings 2007Private credit in 129 countries☆

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