Accounting Regulation, Financial Development, and Economic Growth

Abstract

This paper examines the relationship between accounting regulation, financial development, and economic growth in fifty-one developed and emerging market economies over the period 1997-2009. Accounting regulation has been the center of long-lasting debates in the accounting profession. The debates came to the forefront after several spectacular financial reporting frauds and scandals in the early 2000s damaged public confidence in capital markets. Using generalized method of moments estimation techniques, this study provides evidence that accounting regulation has a strong effect on economic growth even after controlling for a number of macroeconomic and socioeconomic variables.

Earnings Quality and Market Performance in LATAM Corporations: A Combined Agency and Cognitive Approach to Investors’ Perceptions of Managerial Information

“…Some more economically developed countries have passed legislation to ensure better corporate governance and have adopted codes of good conduct in order to reduce the asymmetries of information between shareholders and the firm and to increase the rational component of the decision-making process around choosing one's investments [3,4]. At the same time, a large difference in the quality of financial reporting across countries has been extensively documented [5]. This has led, according to the behavioural finance approach, to the conclusion that the perception of market participants is likely to be biased as a consequence of the lack of transparency in pricing and the poor quality of financial information [6].…”

The impact of accounting development on business sector growth in Slovakia

“…However, the impact of accounting development on business sector growth micro small medium large Total Accounting standards in Slovakia (Figure 3) is not necessarily as positive as we might have expected based on Slovak accounting regulation scores according to the IFAC survey (Akisik, 2013) in comparison to Poland, France and Germany (Table 1) whose accounting models, more creditor than investor-oriented, influenced the Slovak Chart of Accounts. It could be explained by poor private sector accounting standards in Slovakia (the lowest accounting regulation scores of 0.33 compared to 2 for Germany, 1.17 for France, 1 for Poland and 0.83 for Czech Republic, and low licensure requirements in contrast to 1.6 for France, Poland and Czech Republic.…”

“…In order to show that the development of accounting influenced indirectly the growth of the business sector in Slovakia, we analysed the dynamics of the number of entities by size relating to changes of accounting standards during the period 1997-2013. The impact of accounting development on business sector growth in Slovakia is not necessarily as positive as we might have expected, based on Slovak accounting regulation scores according to IFAC survey (Akisik, 2013) in comparison to Poland (with a similar GDP growth rate), and even France and Germany, whose accounting models, which are more creditor than investor-oriented, influenced much of the Slovak Chart of Accounts.…”

“…The lack of such a system can have a negative impact on the ability of emerging capital markets for attracting foreign investment (Saudagaran and Diga, 1997). Akisik (2013) proved that in emerging market countries accounting standards as well as accounting regulations have a positive effect on economic growth. Akisik examined the effect accounting regulations had on growth in 51 countries with use of accounting regulations scores based on the responses to questions in a survey completed by member bodies of IFAC either in 2005 or 2006.…”

“…Questions concerned the accounting system in the respondents' jurisdiction and covered components of the accounting regulation which are listed in Table 1. Source: authors' elaboration based on IFAC survey according to Akisik (2013).…”