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The Role of Accounting in the German Financial System

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Author Info
Christian Leuz () (Wharton School, University of Pennsylvania)
Jens Wüstemann () (University of Mannheim)

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Abstract

This chapter analyzes the role of financial accounting in the German financial system. It starts from the common perception that German accounting is rather "uninformative". This characterization is appropriate from the perspective of an arm’s length or outside investor and when confined to the financial statements per se. But it is no longer accurate when a broader perspective is adopted. The German accounting system exhibits several arrangements that privately communicate information to insiders, notably the supervisory board. Due to these features, the key financing and contracting parties seem reasonably well informed. The same cannot be said about outside investors relying primarily on public disclosure. A descriptive analysis of the main elements of the Germany system and a survey of extant empirical accounting research generally support these arguments.

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Publisher Info
Paper provided by Center for Financial Studies in its series CFS Working Paper Series with number 2003/16.

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Length: 51 pages
Date of creation: 16 Jan 2003
Date of revision:
Handle: RePEc:cfs:cfswop:wp200316

Note: Draft of Chapter 14 of the book "The German Financial System", edited by Jan P. Krahnen and Reinhard H. Schmidt, forthcoming with Oxford University Press, London 2003. We thank Karl-Herrmann Fischer, Jan Krahnen and Harry Schmidt for helpful comments on earlier versions.
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Related research
Keywords: Accounting Disclosure Germany Standards Survey

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Find related papers by JEL classification:
M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
G3 - Financial Economics - - Corporate Finance and Governance
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
K0 - Law and Economics - - General

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kothari, S. P. & Sloan, Richard G., 1992. "Information in prices about future earnings : Implications for earnings response coefficients," Journal of Accounting and Economics, Elsevier, vol. 15(2-3), pages 143-171, August. [Downloadable!] (restricted)
  2. Jacobson, Robert & Aaker, David, 1993. "Myopic management behavior with efficient, but imperfect, financial markets : A comparison of information asymmetries in the U.S. and Japan," Journal of Accounting and Economics, Elsevier, vol. 16(4), pages 383-405, October. [Downloadable!] (restricted)
  3. Leuz, Christian & Nanda, Dhananjay & Wysocki, Peter D., 2003. "Earnings management and investor protection: an international comparison," Journal of Financial Economics, Elsevier, vol. 69(3), pages 505-527, September. [Downloadable!] (restricted)
  4. Andreas Hackethal & Reinhard H. Schmidt, 2000. "Finanzsysteme und Komplementarität," Working Paper Series: Finance and Accounting 50, Department of Finance, Goethe University Frankfurt am Main. [Downloadable!]
  5. Cooke, Terence E. & Wallace, R. S. Olusegun, 1990. "Financial disclosure regulation and its environment: A review and further analysis," Journal of Accounting and Public Policy, Elsevier, vol. 9(2), pages 79-110. [Downloadable!] (restricted)
  6. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-86, June. [Downloadable!] (restricted)
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  7. Ball, Ray & Kothari, S. P. & Robin, Ashok, 2000. "The effect of international institutional factors on properties of accounting earnings," Journal of Accounting and Economics, Elsevier, vol. 29(1), pages 1-51, February. [Downloadable!] (restricted)
  8. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 2003. "What Works in Securities Law?," NBER Working Papers 9882, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Robert E. Verrecchia & Christian Leuz, 1999. "The Economic Consequences of Increased Disclosure," Working Paper Series: Finance and Accounting 41, Department of Finance, Goethe University Frankfurt am Main. [Downloadable!]
  10. Christian Leuz, 2003. "IAS Versus U.S. GAAP: Information Asymmetry-Based Evidence from Germany's New Market," Journal of Accounting Research, Blackwell Publishing, vol. 41(3), pages 445-472, 06. [Downloadable!] (restricted)
  11. McLeay, Stuart & Ordelheide, Dieter & Young, Steven, 2000. "Constituent lobbying and its impact on the development of financial reporting regulations: evidence from Germany," Accounting, Organizations and Society, Elsevier, vol. 25(1), pages 79-98, January. [Downloadable!] (restricted)
  12. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December. [Downloadable!] (restricted)
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  13. G K Meek & S J Gray, 1989. "Globalization of Stock Markets and Foreign Listing Requirements: Voluntary Disclosures by Continental European Companies Listed on the London Stock Exchange," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 20(2), pages 315-336, June. [Downloadable!] (restricted)
  14. Christian Leuz, 1999. "The Development of Voluntary Cash Flow Statements in Germany and the Influence of International Reporting Standards," Working Paper Series: Finance and Accounting 40, Department of Finance, Goethe University Frankfurt am Main. [Downloadable!]
    Other versions:
  15. Jens Wüstemann, 2001. "Mängel bei der Abschlußprüfung: Tatsachenberichte und Analysen aus betriebswirtschaftlicher Sicht," Working Paper Series: Finance and Accounting 73, Department of Finance, Goethe University Frankfurt am Main. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Stefanie Franzke (Contact), Stefanie Grohs, Christian Laux, 2003. "Initial Public Offerings and Venture Capital in Germany," CFS Working Paper Series 2003/26, Center for Financial Studies. [Downloadable!]
  2. Wüstemann, Jens, 2004. "Disclosure Regimes and Corporate Governance," Sonderforschungsbereich 504 Publications 04-11, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim. [Downloadable!]
  3. Reinhard H. Schmidt & Marcel Tyrell, 2005. "Information Theory and the Role of Intermediaries in Corporate Governance," Working Paper Series: Finance and Accounting 142, Department of Finance, Goethe University Frankfurt am Main. [Downloadable!]
  4. Andreas Hackethal & Reinhard H. Schmidt & Marcel Tyrell, 2005. "Banks and German Corporate Governance: On the Way to a Capital Market-Based System?," Working Paper Series: Finance and Accounting 146, Department of Finance, Goethe University Frankfurt am Main. [Downloadable!]
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