Socioeconomic Characteristics as Incentives for Financial Reporting

Abstract

The purpose of this paper is to put forward the relevant role that socioeconomic factors play as an incentive to increase the quality of accounting information. Although accounting regulation has traditionally been considered as the main determinant of the quality of corporate disclosures, recent empirical evidence shows that it also significantly affected by institutional factors as well as by the existence of additional incentives. This paper analyzes the importance of such incentives across 17 Spanish regions (Autonomous Communities). Our results suggest that differences in the socioeconomic level across regions - captured by a proxy for the level of education, culture and wealth of each Autonomous Community - induce differences in level of quality demanded for accounting disclosure. In sum, the socioeconomic level shows a positive and significant relationship with the degree of quality of financial disclosures in each region, as it induces better practices, and thus, a lower degree of manipulation of accounting information. The evidence presented here is robust after controlling for differences in size, ownership structure, profitability, industry weights and growth across regions, as well as for the endogeneity of the socioeconomic level and the effects of alternative conditional variables.