Country wealth, financial accounting infrastructure, and quality of financial information: An international analysis
Project Leader Erekle Pirveli, CSB, Associate Professor
The purpose of this research project is to illuminate why rich economies publish better managerial but equivalent financial information than poorer ones. According to previous literature, the wealth of a country should be associated with a better financial accounting infrastructure, which in turn should reflect better financial information. Contrary to the theoretical assumption underlying this intuition, Pirveli’s and Zimmermann’s (forthcoming) research across 40 capital markets empirically suggests that wealthier countries publish more control-oriented (managerial) and approximately the same level of valuation-oriented (financial) accounting information than poorer countries. The purpose of this research project is to develop an index of financial reporting infrastructure that covers accounting, financial, legal and policy systems to identify the reasons for this discovery. Developing an index of financial reporting infrastructure will help us understand where the link between a country's wealth and the quality of financial information is. This is due to the fact that the wealth of the country does not provide a better infrastructure needed for financial accounting, if such a link exists, but the infrastructure itself cannot provide a better quality of financial information? The results should be of interest to both scientists and investors, as well as policy and standard-bearers.