Do Wealthy Economies have Better Accounting Quality? International Evidence



“Do Wealthy Economies have Better Accounting Quality?

International Evidence”


Project objectives


The objective of this research project is to empirically test whether economies with higher GDP

per capita do have better quality financial information.


Project activities and outcomes


According to Ball (2016), wealthy economies are likely to invest more in the establishment and development of a country-level reporting infrastructure such as accounting, financial, legal and political systems, which should ultimately lead to better accounting quality. This paper argues that wealthy economies are likely to report more controlling-useful, but not necessarily more valuation- useful accounting information compared to the poor ones. This argument is based on the fact that on the one hand decision makers within the wealthy economies’ capital markets are likely to intensively utilize  various  alternative  sources  of  information,  implying  a  lower  demand  on accounting information as a source of valuation decisions. On the other hand, demand for a controlling-useful accounting information would exist even while utilizing other (external) sources of information as the inside (managerial) information helps the management to efficiently control and plan the firm activities. To test the formulated hypothesis, this paper examines accounting and market data of 40 countries’ capital markets, obtained from Compustat Global and Compustat North America, and spanned throughout the last quarter of century, from 1992 to 2016. Country wealth and controlling- and valuation-usefulness of accounting information are proxied by GDP per capita, conditional accounting conservatism and value relevance of earnings and book values, respectively. Descriptive analysis, consistent with the prior literature, reveals that controlling- usefulness and valuation-usefulness of accounting information significantly negatively correlate with each other, putting them as alternative (rather than compatible) objectives of the accounting system. The major finding shows that wealthy economies report significantly more controlling- useful but about equally valuation-useful accounting information compared to their poor counterparts. The findings are interesting from investors as well as standard setters’ perspective.


Project starting and finishing dates: 16.05.2018 – 15.11.2018

Coordinator University: Ludwig Maximilian’s University in Munich, Germany

The list of Project Partner Universities: Caucasus University, Georgia

Principal Investigator: Prof. Dr. Erekle Pirvel