Legal Origin Research Articles

Impact of Cultural and Environmental Factors on the Adoption of AAOIFI Accounting Standards in MENA Countries: Logistic Regression and Neural Networks

The purpose of this study was to investigate the effect of cultural and environmental factors on the decision of adoption of Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) in MENA countries. Precisely, we empirically diagnosed the impact of culture, the origin of the legal system, economic growth, the presence of National Shariah Council and the political freedom on the adoption of AAOIFI. Data from 44 countries belonging to the MENA region was used and compared between 26 countries adopting the standards of AAOIFI and 18 not adopting during the period 2007-2017. The paper used a Logit regression analysis to model the binary decision to adopt the AAOIFI or not. Additionally, neural networks were performed to test the robustness of the results of the logistic regression. We found that all macroeconomic factors affected the decision of adoption. Furthermore, the neuronal model showed that the level of education and the political freedom were the most important factors influencing the adoption of AAOIFI. Keywords: AAOIFI standards, culture, legal origins of law, political freedom, economic growth, logistic regression, neuronal networks.

Disclosure of Related Party Transactions Under IFRS: Does Cross-Listing Reduce the Legal Origin Disclosure Gap?

Synopsis The research problem We investigate whether cross-listing in the United States is associated with a reduction in disclosure deficiencies about related party transactions (RPTs) related to the legal traditions of firms’ countries of origin. Motivation The extant literature shows that there is a disclosure disparity associated to the firms’ legal origin (civil or common law) and the countries’ institutions (regulation, enforcement, and market scrutiny). The literature has not examined whether cross-listing in the United States mitigates (or eliminates) the disclosure gap for firms from civil law countries and countries with worse institutions. We focus on RPTs because the US Securities and Exchange Commission has put particular emphasis on regulation of this type of disclosure. Hypotheses H1: Among domestically listed firms, those from countries with common law tradition present superior level of RPT disclosure than firms from countries with a civil law tradition. H2: Cross-listed firms have a superior level of RPT disclosure compared to domestically listed firms from the same country. H3: Among cross-listed firms, those from countries with common law tradition present a superior level of RPT disclosure than firms from countries with a civil law tradition. Target population Firms from countries that have adopted international financial reporting standards (IFRS). We sample firms from the G20 countries that have adopted IFRS because of their representativeness in the world economy. Adopted methodology Ordinary least squares (OLS) regressions with firm and industry-year fixed effects. Two-stage least squares (instrumental variables) regressions to tackle endogeneity issues. Analyses We manually collected data from the financial reports of 531 firms from the G20 countries that have adopted IFRS to compute indices of compliance with disclosures required by IAS 24. We performed double-difference regressions, comparing firms across their legal origin (common law versus civil law), and cross-listing status (cross-listed in the United States versus domestically listed only). In addition, we studied the institutional channels that drive the disclosure gap between common and civil law firms. Findings For domestically listed firms, we found that firms from the common law tradition have RPT disclosure levels superior to those of firms from the civil law tradition. We found that the level of RPT disclosure is associated with countries’ regulatory quality, rule of law, and control of corruption. However, we did not find any differences in the level of RPT disclosure among firms cross-listed in the United States that can be associated with firms’ legal origin or with other home-country institutional features. Our results suggest that the regulatory enforcement and scrutiny of capital markets imposed by the US market compensate for home-country institutional deficiencies and eliminate differences in firms’ RPT disclosures across legal origins.

Study protocol: assessing the association between corporate financial influence and implementation of policies to tackle commercial determinants of non-communicable diseases: a cross-sectional analysis of 172 countries

IntroductionThere are many case studies of corporations that have worked to undermine health policy implementation. It is unclear whether countries that are more exposed to corporate financial influence are systematically...

Effects of the rule of law and central bank independence on economic inequality and surplus value

ABSTRACT In this study, panel data, which were obtained from 36 countries, are utilized to empirically explore the factors that affect economic inequality before redistribution through taxes and social security. Our estimations reveal that legal origin influences the resolution of the paradox in which economic inequality before redistribution is high, although redistribution is low. Simultaneously, the Gini coefficient before redistribution can be lowered by strengthening the rule of law in countries with English legal origin, which is not the case in countries with other legal origins. In countries with French legal origins, strengthening the rule of law will increase the redistribution function. Furthermore, the rule of law, as well as central bank independence, can reduce economic inequality. The rule of law exhibits a negative relationship with the rate of surplus value, and the rate of surplus value exhibits a negative association with central bank independence. Simultaneously, the rule of law and central bank independence synergistically reduce economic inequalities. Thus, a weak rule of law, coupled with the absence of central bank independence, will promote monetary easing policies, which favours politicians. Moreover, inappropriate monetary easing policies would increase the control of companies over workers and promote exploitation.

Organizational structure and tax avoidance: multinational evidence from business group affiliation

ABSTRACT We investigate the relation between business group affiliation and tax avoidance for publicly traded firms in a global setting. Overall, we find that publicly traded business group firms exhibit greater tax avoidance than stand-alone firms. This evidence is consistent with prior findings on Japan and Korea and suggests that the business group form allows ultimate owners to shift income between entities to lower their tax payments. However, we find that the effect is restricted to firms in countries with developed economies and with code law traditions. In emerging market, code law countries we do not observe a significant difference in tax avoidance, and in countries with common law systems we find that business group firms exhibit lower tax avoidance than stand-alone firms. Thus, our evidence suggests that the extent of a country’s economic development and legal origin combine to affect the ability of business groups to facilitate tax avoidance for public companies.

Legal Origins, Governance and Bank Lending

Abstract This article investigates if legal origins and governance impact lending by banks in a large sample of low- and middle-income countries for 2004 to 2017. The results revealed that countries with British legal origin, the strength of the legal systems, the rule of law, and regulatory quality are positively and statistically significantly correlated with the credit provided by the banks, among other factors. The estimations based on data for the post-global financial crisis revealed that in countries with British legal origin, the rule of law and regulatory quality mattered intensely in the banking sector’s credit. The results imply that the developing countries should continue to sustain and improve their good governance practices and improve on contract enforcements to allow maximum leverage practices of good governance that can positively influence credit diffusion by the banks.

Voluntary sustainability assurance in small and medium‐sized entities: The role of country origin in Europe

AbstractThe assurance of sustainability information by small and medium‐sized entities (SMEs) has not attracted much research interest to date. To rectify this, we draw on a sample of European firms (from the EU, the United Kingdom and Norway) extracted from the Global Reporting Initiative (GRI) database and explore the disclosure variable in relation to country‐specific factors. Assurance rates are found to be low among SMEs, and moreover, the level of disclosure is limited. The assurance market is dominated by accounting firms, above all by the Big Four. Legal origin is found to be a highly relevant factor, with Scandinavian countries presenting the highest percentage rates of sustainability report assurance. Among the cultural variables analysed, power distance, masculinity and uncertainty avoidance have a significant negative impact on the decision to assure sustainability information. Overall, the study serves to enhance understanding of SME practices in different countries of origin.

The homogeneity of BIG4 audit reports after the implementation of key audit matters in the context of fair value accounting

This study examines the homogeneity of BIG4 audit reports after implementing key audit matters (KAMs) in the context of fair value accounting. We focus on reported KAMs and the procedures related to the fair values of investment properties, particularly those related to challenging management's estimations and valuation specialists' use. Our data consist of 235 individual audit reports from the real estate sector from 2017 to 2018 and cover 60% of the listed real estate companies in the EU, Switzerland, and Norway. We found that the BIG4 audit firms are not homogenous in their audit reports. There is a statistically significant difference among the BIG4 audit firms in reporting the challenge of management estimates and in the number of audit procedures. We also found that a country's legal origin plays a significant role when auditors report KAMs. Our findings contribute to the current audit quality and reporting literature.

Bank Risk-Taking and Legal Origin: What Do We Know about Dual Banking Economies?

This paper investigates the relationship between legal origin and banks’ risk-taking behavior. We employ GMM to study a sample of both Islamic and conventional banks from 14 dual banking economies from 2005–2018. Our findings can be summarized as follows: (a) bank risk-taking and legal origin are negatively related in our sample countries, (b) Islamic banks are more stable in English law (common) countries, and (c) bank regulations have a differential effect on Islamic and the conventional banks. Our overall findings align with the dark side of the legal framework, indicating a robust legal framework to encourage bank risk-taking. The results have several implications for shareholders, regulators, and other key stakeholders.

The cultural dimension in companies' leverage. New evidence using panel data for a European macroeconomic context

PurposeThe main objective of this work is to show that the traditional specific characteristics of companies as well as cultural and religious dimensions can influence the leverage of companies in different macro-environmental systems.Design/methodology/approachTo achieve this aim, the authors have used data from 1.568 firms from 7 European countries between 2010 and 2016, and the models were estimated by using panel data methodology, specifically the generalized method of moments (GMM) estimation method by Arellano and Bover (1995) and Blundell and Bond (1998).FindingsOverall, the empirical results point out that the cultural moderating factors are essential in determining companies' capital structure, regardless of the country's legal origin. The study results also show that traditional variables, intrinsic to management, macroeconomic environment and religion, have a central role in capital structure, namely for the civilian countries.Originality/valueAs far as the authors know, this is the first work that uses, in addition to the traditional specific characteristics of companies, cultural dimensions and religion, as determinants of debt levels, in different legal systems for Europe.

Evolutionary law and economics: theory and method

The standard model of evolution in the economics of law, its important insights notwithstanding, lacks a good account of inheritance to go with analogues to variation and selection. The normative implication of the standard model, which is that self-organising and spontaneous orders will tend to efficiency, is also misplaced. Just as the association of evolution with progress, characteristic of the theory of legal evolution of a century ago, is now understood to be anachronistic, so it is time to discard outmoded notions linking judge-made law and common law legal reasoning with evolution to efficiency. Setting aside the unwarranted normative connotations of evolutionary models would release them to shape empirical research. Evolutionary theory informs methods, including leximetrics, time-series econometrics and machine learning, with the potential to throw light on the structural dynamics of legal change, and to resolve questions of law’s coevolution with the economy which were raised but not resolved by the legal origins debate.

Inflation targeting and financial crisis

ABSTRACT We study the average treatment effect of inflation targeting on the likelihood of financial crisis with a large panel of countries over 1980–2017. To address the self-selection problem of inflation targeting, we adopt propensity score matching. Various matching estimators show consistent evidence that inflation targeting has significantly reduced the probability of a financial crisis. When decomposing financial crisis into various types, the effects are pronounced for the banking crisis, inflation crisis, external debt crisis, and stock crash. Our results are largely unaltered to a battery of robustness checks when controlling for legal origins, governance quality, financial development, capital account openness, fiscal balance, debt-to-GDP ratio, financial regulations, and central bank independence. This paper suggests that price-stability-oriented monetary policy frameworks, such as inflation targeting, also have non-negligible ‘side effects’ on financial stability.

Responses in divergence of opinion to earnings announcements: evidence from American depository receipts

PurposeThe purpose of this paper is to investigate the relationship between investors' divergence of opinions and the asset prices of foreign stocks and also examine the effect of home market country-level factors on the influence of divergency of opinions on stock price.Design/methodology/approachThe authors employ panel data estimation with fixed effects to examine the host market response in divergent opinions to the earnings announcements. The paper uses the American Depositary Receipts (ADRs) of 42 countries from 1985 to 2011.FindingsThe authors find a negative relationship between differences of opinions and excess quarterly earnings announcement returns, and investors do process information asymmetrically based on good and bad earnings shocks. In addition, the authors find the negative relationship between divergent opinions and excess earnings announcement returns in ADRs is more pronounced in countries with short-sales restrictions, while other home-market country-level factors – the enforcement of insider trading law, legal origin, investor protection and rating on accounting standard – do not influence the relationship between investors' divergency of opinion and stock returns.Originality/valueThis paper is among the first to bring asymmetric effects on convergence in Miller framework and enhance the understanding of price convergence documented in Miller (1977). In addition, this study incorporates home-market country-level factors in explaining the relationship between investors' divergency of opinions and stock returns.

An integrated study of Violae Herba (Viola philippica) and five adulterants by morphology, chemical compositions and chloroplast genomes: insights into its certified plant origin

BackgroundViola philippica Cav. is the only original plant for Violae Herba, as described in the Chinese Pharmacopoeia. The quality of this crude drug is affected by several adulterants from congeneric Viola species, and the authentic plant origin of Violae Herba is still controversial. Genome-based identification offers abundant genetic information and potential molecular markers that can be used for the authentication of closely related species. This study aims to investigate the certified origin of Violae Herba and to develop more effective markers for these easily confused species at the genetic level.MethodsWe compared the morphology and chemical composition of 18 batches of commercial samples and six widespread medicinal Viola plants used as Violae Herba or its substitutes by TLC and HPLC-Triple-TOF–MS/MS analyses. The complete chloroplast genomes of these species were sequenced and analyzed, including the general features, repeat sequences, mutational hotspots and phylogeny. The complete chloroplast genomes used as superbarcodes and some specific barcodes screened from mutational hotspots were tested for their ability to distinguish Viola species.ResultsA comparative study showed that Violae Herba is a multi-origin traditional Chinese medicine. Commercial decoction pieces and the standard reference drug were mainly derived from V. prionantha, clashing with the record in the Chinese Pharmacopoeia. Chloroplast genome analyses of V. philippica and five adulterants indicated that sequence divergence was relatively low within Viola species. By tree-based approaches, the complete chloroplast genomes showed a better discrimination ability and phylogenetic resolution for each Viola species. These results indicate that the whole chloroplast genomes can be used as superbarcodes to differentiate Viola medicinal plants. More specific DNA barcodes could be further developed from the Viola chloroplast genomes for more efficient and rapid identification of commercial Violae Herba and its adulterants.ConclusionsThis study has implications for chloroplast genome-based phylogenetic analysis and the authentication of multiple Viola species used as Violae Herba. The legal origin recorded in the Chinese Pharmacopoeia should be further revised to V. prionantha, in line with the commercial Violae Herba in the TCM markets.

Legal Origins and Intersectoral Regulation of AEO Institution

The main elements of AEO institution initially emerged in legislations of different countries, which legal systems belong both to common law and civil law families. In addition, there was an inevitable variability towards the tasks being solved, from general supply chain security issues to a focus on countering terrorist threats. At the same time, the modern AEO standards formed both at the level of international organizations, like WCO and WTO, and the regional level, such as the EU and associated countries. Therefore, we argue that there are several promising approaches to analyzing the legal status of AEO, including the concept of ‘legal origins’ and the institutions’ legal theories. They have a significant potential for explaining national differences in the implementation of the AEO institution, the specifics of the interaction of the norms of different branches of law in regulating the activities of the AEO, the methods, and methods of state administration of the AEO programs. Besides, the paper addresses the issue of intersectoral regulation of AEO institution, which embraces norms of several branches of law, including both public (administrative, tax and customs) law and private. Furthermore, the idea of delegation of competence and responsibilities towards granting supply chains security from state authorities to private entities (i.e. ‘trusted traders’) creates a shift in legal regulation where different internal rules and practices of private companies become essential to achieving the tasks assigned to AEO institution.

Are Bond Markets and Bank Credits Complementary or Substitutable?Evidence from the Rule of Law and Legal Origin

Are Bond Markets and Bank Credits Complementary or Substitutable?Evidence from the Rule of Law and Legal Origin

The effect of the legal tradition on the law about public corporate governance - recommendations for Vietnam

Along with the process of integration and attracting international capital, the law about public corporate governance of Vietnam also includes the need to receive high standards of the regulations of other countries. However, to ensure the process of completing and exercising law enforcement effectively, helping to reduce enforcement costs for the corporation, the legal tradition of countries is a factor that needs to be considered adequately by the legal origin. The legal tradition has a profound influence on the reform and improvement of the country's modern legal system and is the source of the differences among countries' corporate governance legal systems. Legal traditions have a strong impact on investor protection mechanisms and corporate governance models. Within the scope of this article, the author generalizes the effects of legal traditions on the construction and consolidation of corporate governance laws of legal families in different countries. Simultaneously, the paper focuses on analyzing the case of Vietnam where there is a Civil legal tradition, but the corporate governance model is hybrid with the corporate governance model in countries with a Common law tradition. Consequently, the analysis shows the need to establish new values on the basis of legal traditions to modernize the law on public corporate governance in Vietnam. In addition, propose directions to improve the adjustment efficiency of Vietnam's public company governance law.

Legal Origins

Legal Origins

Information for Banking Efficiency in Africa: Evidence from Income Levels and Legal Origins

Information for Banking Efficiency in Africa: Evidence from Income Levels and Legal Origins

Legal Origins and Institutional Investors' Support for Corporate Social Responsibility

Legal Origins and Institutional Investors' Support for Corporate Social Responsibility