Abstract
Purpose – The goal of this study was to investigate the relationship between the level of Earnings Opacity and a company’s informational environment, specifically considering accounting standards and the legal origins of the system. Design/methodology/approach – The sample consisted of publicly traded companies from 20 countries classified as emerging, based on agency Standard & Poor’s index. The sample included data from 2004 to 2013. In order to compare the indicators among the group of countries, taking into account their institutional characteristics, the Mann-Whitney test and the Kruskal-Wallis test were performed. Findings – The assessment of the informational environment measures’ behavior in emerging countries revealed that these measures were correlated, suggesting that, despite different behaviors, opacity proxies share information. The fact that earnings opacity was lower in countries that had already adopted international standards during the analyzed period was also observed. In the same sense, a higher level of income smoothing was detected in countries of French code law origins. Originality/value – This article contributes to the understanding of the relationship between the characteristics of an accounting informational environment and the levels of opacity of the information emitted by accounting. Thus, this article has helped managers, investors and regulators to understand users’ needs and how country-specific characteristics change their perspectives.
Highlights
Financial reports issued by publicly traded companies play a crucial operational role in capital markets (Healy & Palepu, 2001)
Compulsory facing regulatory entities’ requirements, these documents aim to mitigate the information asymmetry that persists between managers and investors outside the firm
Accounting information is influenced by the environment it is produced in; it is the result of a range of interactions among factors such as: managers’ motivation, accounting standards and institutions’ enforcement (Bhattacharya et al, 2003)
Summary
Financial reports issued by publicly traded companies play a crucial operational role in capital markets (Healy & Palepu, 2001). Accounting information is influenced by the environment it is produced in; it is the result of a range of interactions among factors such as: managers’ motivation, accounting standards and institutions’ enforcement (Bhattacharya et al, 2003) Studies such as La Porta, Lopez-deSilanes, Shleifer, and Vishny (1997, 1998) were able to demonstrate that laws and regulations that protect shareholders vary systematically across traditions and origins, interfering in a firm’s internal agents capacity to limit the extent of investors’ expropriation. Weak investor protection could reduce the effectiveness of disclosure of high quality information in interfering with the perceptions of its users This would happen because financial reporting in emerging markets would be prone to a greater degree of manipulation in the face of low legal enforcement and, investors would not lean on the disclosed information (Fatma & Abdelwahed, 2010). Such as in a feedback loop, academic research elicits insights into what information these parties demand and how regulatory changes alter users’ perspectives (Barth, Beaver & Landsman, 2001)
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
