[经管营销]Earnings quality in UK private firms- comparative loss recognition timeliness.pdf

ARTICLE IN PRESS Journal of Accounting and Economics 39 (2005) 83–128 Earnings quality in UK private firms: comparative loss recognition timeliness $ Ray Balla,*, Lakshmanan Shivakumarb a Graduate School of Business, University of Chicago, 1101 East 58th Street, Chicago, IL 60637, USA b London Business School, Regent’s Park, London NW1 4SA, UK Received 27 November 2001; received in revised form 5 March 2004; accepted 7 April 2004 Available online 2 November 2004 Abstract UK private and public companies face substantially equivalent regulation on auditing, accounting standards and taxes. We hypothesize that private company financial reporting nevertheless is of lower quality due to different market demand, regulation notwithstanding. A large UK sample su orts this hypothesis. Quality is operationalized using Basu’s (1997) time- series measure of timely loss recognition and a new accruals-based method. The result is not affected by controls for size, leverage, industry membershi pand auditor size, or by allowing endogenous listing choice. The result enhances understanding of private companies, which are predominant in the economy. It also provides insight into the economics of accounting standards. r 2004 Published by Elsevier B.V. JEL classification: M41; K22; N24 Keywords: Earnings quality; Conservatism; Loss recognition; Private firms; Economics of accounting standards; Earnings time series; Accruals $ We are grateful for helpful comments from Sudipta Basu, Martin Casey, Greg Clinch, Gilad Livne, Jim Seida, Michelle Yetman, Jim Wahlen, Gregory Waymire (the referee), Jerold Zimmerman (the editor), and participants at the 2002 Annual Meeting of the American Accounting Association, University of Chicago, Indiana University, Lo