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Abstract For a sample of 31 countries, we document that financial disclosures are more transparent and national accounting standards require timelier (accrual based) reporting in countries with stronger investor protection. These countries also spend more on auditing enforcement and the Big Five accounting firms audit proportionately more companies in these countries. These results indicate that higher quality accounting standards and the enforcement of such standards through higher quality auditing are more likely to exist in corporate governance in countries with strong investor protection. Higher quality accounting and auditing are also positively associated with financial market development in countries whose legal systems are conducive to the protection of investors. However, we are unable to find systematic evidence that higher quality accounting and auditing alone—independent of a country's underlying investor protection regime—affects the development of financial markets. © City University of Hong Kong. JEL Classifications: G28G34K22M41O1OKeywords: accountingAuditingcorporate governanceinvestor protectionfinancial markets
Francis et al. (Sun,) studied this question.