Financial Reporting Quality and Capital Markets

Financial reporting quality encapsulates firm-level and country-level corporate governance, financial reporting, earnings management and audit quality.

Reports on a table

The rapid growth in international business, and reforms in accounting and auditing standards, and regulations and governance structures requires an assessment of quality of governance mechanisms within companies, firm performance and top management performance; the impact of diversity in the board of directors and firms on performance and operations; external audit quality, financial ratio and financial statement analysis, variability in the qualitative characteristics of accounting standards and diversity in disclosure policies and procedures.

Underpinning theories may include agency, legitimacy, stakeholder or resource dependency tenets amongst others. Financial reporting quality research may also involve behavioural based research, business ethics, the role of accounting numbers in contracts and the political process, and the impact of changes in accounting standards or regulations.

Capital markets research may involve an examination of the determinants of cost of equity, cost of debt, investment efficiency, investor behaviour, investor protection, investment decision making, analyst forecasts, firm  valuation, tests of market efficiency with respect to accounting information, fundamental analysis and the value relevance of financial reporting, firm profitability, analysis of asset use including cash, inventories and long-lived assets and firm-level and international taxation.

Evidence from research in these areas is likely to be helpful in accounting standard setting, capital market investment decisions, the role of the external auditor and in corporate financial disclosure decisions. Research is published in top-level accounting journals.