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The Influence of Country- and Firm-Level Governance on Financial Reporting Quality: Revisiting the Evidence

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  • Pierre Bonetti
  • Antonio Parbonetti
  • Michel Magnan

    ()

Abstract

Using a large sample of European firms that mandatorily adopted IFRS, this paper assesses how firm-level governance, as proxied by board attributes, and country-level enforcement interplay in affecting financial reporting quality. Financial reporting quality is assumed to have three dimensions: earnings informativeness, accruals management, and real earnings management. Three key findings emerge from our analyses. First, IFRS adoption per se does not seem to affect financial reporting quality. Second, in countries characterized by weak enforcement, strong board-level monitoring appears to enhance financial reporting quality, thus suggesting a substitutive effect between firm- and country-level governance. Third, in countries characterized by strong enforcement, firms with strong board-level monitoring exhibit a higher level of financial reporting quality than firms with weak board-level monitoring, thus suggesting that country- and firm-level governance are complementary. Overall, our findings help bridge the gap in the debate about the effects of country- and firm-level governance on the quality of financial reporting and provide further nuance on prior IFRS adoption research. Depuis quelques années, le rôle et l’importance relative de la gouvernance au niveau organisationnel (entreprise) et de la gouvernance au niveau institutionnel (pays) sur plusieurs décisions et pratiques organisationnelles font l’objet d’un débat animé. Une des facettes de ce débat est l’impact des deux niveaux de gouvernance sur la crédibilité des résultats financiers présentés par les entreprises. La question est d’importance car elle sous-tend plusieurs interventions réglementaires en matière de gouvernance. Nous étudions cette problématique au moyen d’un échantillon comprenant un grand nombre d’entreprises européennes ayant adopté les normes comptables internationales (ou, International Financial Reporting Standards, IFRS), ce qui assure une certaine comparabilité des données. La gouvernance organisationnelle est représentée par différents attributs du conseil d’administration alors que la gouvernance institutionnelle est fonction du contexte d’intervention réglementaire et judiciaire dans un pays. La crédibilité des résultats financiers est présumée comporter trois dimensions : sont-ils informatifs, libres de manipulations comptables systématiques et non affectés par des décisions de gestion non justifiées? Trois résultats principaux se dégagent de nos analyses. Premièrement, l’adoption d’un nouveau référentiel comptable qui est présumé être plus rigoureux (IFRS) n’a pas d’incidence sur la crédibilité des résultats financiers. Deuxièmement, les entreprises de pays caractérisés par une gouvernance institutionnelle faible mais dotés d’un conseil d’administration solide voient la crédibilité de leurs résultats financiers s’améliorer suite à l’adoption obligatoire du référentiel IFRS. Par conséquent, pour les entreprises de ces pays, la gouvernance organisationnelle se substitue aux carences de la gouvernance institutionnelle. Finalement, on observe une amélioration de la crédibilité des résultats financiers rapportés par les entreprises dotées d’un conseil d’administration solide et en provenance de pays ayant une gouvernance institutionnelle rigoureuse, ce qui suggère que les deux niveaux de gouvernance sont complémentaires dans ce cas.

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Bibliographic Info

Paper provided by CIRANO in its series CIRANO Working Papers with number 2013s-03.

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Date of creation: 01 Jan 2013
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Handle: RePEc:cir:cirwor:2013s-03

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Keywords: IFRS; Corporate governance; Legal enforcement; financial reporting quality;

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