Abstract
This paper examines earnings quality adapted to International Financial Reporting Standards in Mexican emerging capital market and how investor protection and audit quality to override managers’ incentives to engage in earnings management. We evidence that the new accounting regulation could be considered of high quality financial reporting standard because it is associated with lower earnings management. The analyses also suggest that cross-listed firms have higher quality local generally accepted accounting principles accounting information as measured by earnings management. There is also evidence that earnings of Mexican companies with Big 4 auditors are of higher quality. The results contribute to the ongoing debate on whether high standards are sufficient and effective in countries with weaker investor protection rights.
Highlights
International accounting literature suggests that standards promulgated for developed countries may not be useful for participants in emerging markets (Prather-Kinsey, 2006)
We question whether adaptation of International Financial Reporting Standards (IFRS) by a Mexican company has a stronger effect on the quality of earnings of that company when is audited by a Big 4 audit firm
We question whether adaptation of IFRS by a Mexican firm has a stronger effect on the quality of earnings of that firm when cross-listed on a well-developed capital market: New York Stock Exchange (NYSE) that is demanding in terms of information quality
Summary
Provided in Cooperation with: University of Stellenbosch Business School (USB), Bellville, South Africa. (2014) : Keys to reduce earnings management in emerging markets, South African Journal of Business Management, ISSN 2078-5976, African Online Scientific Information Systems (AOSIS), Cape Town, Vol 45, Iss. 3, pp. Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. This paper examines earnings quality adapted to International Financial Reporting Standards in Mexican emerging capital market and how investor protection and audit quality to override managers’ incentives to engage in earnings management. We evidence that the new accounting regulation could be considered of high quality financial reporting standard because it is associated with lower earnings management. The analyses suggest that cross-listed firms have higher quality local generally accepted accounting principles accounting information as measured by earnings management. The results contribute to the ongoing debate on whether high standards are sufficient and effective in countries with weaker investor protection rights
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