The Timeliness of Income Recognition by European Companies: An Analysis of Institutional and Market Complexity

Abstract

This study examines international differences in the asymmetric timeliness of accounting earnings by modelling international exposure to different jurisdictions as a firm-specific effect, using an index of regulatory complexity that relates to conditions in each of the capital markets in which the firm's equity is listed. The companies investigated are those with shares cross-listed on European stock exchanges, some of which are also listed in New York. Variation across jurisdictions and markets with respect to earnings timeliness and conservatism can be explained in part as an interaction of market effects and regulatory effects, with some evidence of opposition between the two, and the sensitivity of earnings to stock price changes shows a common, converging trend towards greater accounting conservatism in Europe. Copyright Blackwell Publishers Ltd, 2004.

The timeliness of accounting disclosures in international security markets

“…Giner and Rees (2001) and Raonic, McLeay, and Asimakopoulos (2004) argue that the relation between reported earnings and stock returns is very similar across European countries, regardless of legal system classification. In contrast, Garcia Lara, Garcia Osma, and Mora (2005) confirm the importance of a country's legal system: they argue that code law based firms have incentives to reduce earnings consistently, enhancing the association between earnings and returns in bad news periods.…”

“…8 Some studies, e.g Giner and Rees (2001). andRaonic et al (2004) have claimed that there are no substantive differences in earnings conservatism between common and code law countries in Europe. In contrast, with regards to the timeliness of accounting statements, we observe substantial differences inTable 1: median reporting days for all three common law European countries (i.e.…”

Accounting conservatism and corporate governance

“…In fact, there is a wealth of recent research that uses the Basu measure of conservatism (Pope and Walker 1999;Ball et al 2000Ball et al , 2003Givoly and Hayn 2000;Holthausen and Watts 2001;Ryan and Zarowin 2003;Raonic et al 2004;Bushman and Piotroski 2006;Roychowdhury and Watts 2006; among many others), that obtains empirical evidence in accordance with the extant theories. Many of these theories have also been supported by research designs that do not rely on the Basu approach.…”

Balance sheet versus earnings conservatism in Europe

“…Giner and Grambovas (2001) analyse the existence of earnings conservatism in ten European countries showing that the degree of earnings conservatism is larger in case of monetary crisis. Raonic et al (2003), focusing on European interlisted firms, argue that differences between European countries can be explained by several institutional factors. Chandra et al (2001) examine conservatism in US high tech firms.…”