financing for firms in countries wi

financing for firms in countries with low legal protection of investors. Firms in need of financing may therefore attempt to assure investors by listing in exchanges with better rule of law, where violation of financial reporting regulation will result in sanction. Cross-listing firms thus have better accounting quality than their local counter-parts. Nevertheless, Lang et al. (2006) find that earnings quality for cross-




29

listed firms in the U.S. is lower than their U.S. matched samples. They further find that the difference in earnings quality is associated with the legal system in the firm’s home country. Cross-listed firms from countries with low investor protection show more signs of earnings management, suggesting that enforcement by the SEC to foreign firms may be less stringent than for U.S. firms. In addition, Leuz (2006) provides evidence that the low earnings quality of cross-listed firms compared to that of U.S. firms may be caused by high ownership concentration in cross-listed firms.21

Legal and political systems also affect accounting quality indirectly through the incentives associated with financial reporting.22 Financial reporting incentives stem from both the supply and demand for information. Ball (2001) argues that “all parties contracting or contemplating contracting with the firm demand information about the firm’s ability to meet its contractual obligations. Firms therefore agree to incur the costs of supplying information, and in return they receive better terms of trade from factor owners and customer” (p. 131). Financial reporting is therefore an equilibrium outcome from the cost of disclosure, which includes the cost of preparing financial reports and leaking proprietary information, and from the benefit of meeting contracting parties’ demand for information.23

The first financial reporting incentive that likely affects accounting quality is the development of financial markets (arrow 4 in Figure 1). Demand for information results from market participants’ need to reduce information asymmetry. Adverse selection happens when

21 We explore incentives associated with ownership concentration below in our discussion of arrow 8 in Figure 1, Accounting Quality and Ownership.
22 These incentives in Figure 1 may also affect legal and political systems. For example, the Sarbanes and Oxley Act in the U.S. derived from investors’ need for a more transparent financial reporting system after several accounting scandals in 2001. Leuz (2001) also argues that the reason that Germany was moving toward a common-law system in the 1990s is the need for foreign financing after the reunification in 1989. A detailed discussion on this inverse relation is outside the scope of this paper.

23 Consistent with Burgstahler et al. (2007), this argument is based on the assumption that corporate insiders have private information on firm performance and have considerable discretion in using private information in financial reporting.



30

market participants cannot differentiate between good firms and bad firms. Without such differentiation, market participants would “price protect” themselves by increasing costs of financing to firms, and thus only bad firms would be willing to finance at these high costs. Consequently, financial markets would mostly consist of bad firms. Spence (1973) finds that credible signaling can reduce this adverse selection problem. If signaling is more costly to low-quality firms, high-quality firms will signal to the market at lower costs and receive lower costs of financing. Financial reporting is a primary mechanism used to signal to the market. Francis et al. (2005) find that firms in need of external financing voluntarily disclose more information than a country’s minimum requirement and have lower costs of capital. Similarly, Huddart et al. (1999) find that even though liquidity traders are risk-neutral, they prefer to trade on high disclosure exchanges, which in turn motivates firms to raise funds on a high disclosure stock exchange to exploit the liquidity and lower costs of capital at the exchange. Burgstahler et al. (2007) find that public firms in countries with large and highly developed equity markets engage less earnings management than private firms in these countries. They attribute this finding to either 1) stock markets providing incentives for firms to make earnings more informative to reduce costs of capital; or 2) stock markets screening out firms with less informative earnings. Thus, the demand for information from market participants provides incentives for firm managers to improve the quality of financial reporting.

Legal and political systems affect accounting quality indirectly through financial market development (arrow 5 in Figure 1). Strong investor protection and lower levels of government expropriation guarantee investors a return on their investments and increases the number of investors who are willing to provide financing. La Porta et al. (1998) find that the character of legal rules and the quality of law enforcement determine the size of capital markets. French law




31

countries have the weakest investor protection and smallest equity and debt markets.24 La Porta et al. (2006) examine the mechanism through which securities laws influence stock market development. While they do not find public enforcement mechanisms, such as independent regulators and criminal sanctions benefit stock markets, they find that laws mandating disclosure and facilitating private enforcement of recovery of investors’ losses benefit stock markets. Countries with highly concentrated political and religious power are also linked to less developed financial markets. Stulz and Williamson (2003) find that a country’s major religion is related to the size of its stock market. Leuz and Oberholzer-Gee (2006) find that firms with political connections are less likely to go public. Because the demand for accounting information is dependent on the nature of financial markets, and the legal and political systems impact the markets, characteristics of the legal and political systems will impact the quality of earnings, a common GAAP notwithstanding.

Firms with different financing needs have different incentives for financial reporting (arrow 6 in Figure 1). Shareholders and creditors use different methods to reduce information asymmetry. When investors invest directly through a stock market, they rely on a company’s financial reports and expend resources to acquire information. If, however, investors decide to lend through a bank, they deposit money in the bank and delegate the role of monitoring borrowing firms to the bank. Sun (2006) argues that banks demand less financial reporting than do shareholders because banks have private access to firm managers. Schumpeter (1939) describes the private communication channel as follows: “the banker must not only know what the transaction is which he is asked to finance and how it is likely to turn out, but he must also know the customer, his business, and even his private habits, and get, by frequently ‘talking

24 Stulz and Williamson (2003) find that not only legal systems, but also culture and religion are associated with investor protection and the size of financial markets.



32

things over with him,’ a clear picture of the situation” (p. 116 as quoted on p. 383 of Diamond, 1984). Jacobson and Aaker (1993) argue that the relationship between firms and investors in Japan is closer to that in the U.S. because Japanese banks are the biggest investor in Japan and have close ties with firms. The need for financial reporting to reduce information asymmetry is thus lower in Japan. Sun (2006) finds that the usefulness of financial reporting in improving capital investment decisions is decreasing with the level of debt financing. Similarly, Ali and Hwang (2000) find that price leads earnings more in bank-based economies than in market-based economies. Due to low reporting incentives, we would expect lower accounting quality in firms dependent on bank financing.
Legal and political systems also affect accounting quality indirectly through capital structures (arrow 7 in Figure 1). In countries with high creditor protection, firms are more easily able to get bank financing at lower cost. In countries with high possibility of government expropriation and corruption, contracting is mostly completed privately to avoid social and political scrutiny, and financial reporting is a less frequently used method to reduce information asymmetry. Earnings quality is thus lower in countries with high dominance of bank financing and political risks.

Firms with concentrated ownership and high divergence between cash flow rights and control rights have low incentives for financial reporting (arrow 8 in Figure 1). First, controlling stakeholders are active in management, thus reducing the demand for financial reporting. Ball and Shivakumar (2005) and Burgstahler et al. (2007) examine the earnings quality of private firms in Europe, which are normally controlled by few shareholders and lenders. They find that earnings quality of private firms is lower than that of public firms, although both groups are subject to the same accounting, tax, and auditing standards. They




33

attribute the findings to low demand for high quality financial reporting because stakeholders in private firms have easy access to firms’ information. The low earnings quality of private firms also avoids leakage of proprietary information to the public and is thus an equilibrium outcome. Second, controlling shareholders have incentives to hide their exploitation of the wealth of minority shareholders. Pyramidal and cross shareholding gives an ultimate owner dominant control over a firm without a large investment in ownership. This divergence between control rights and cash flow rights creates an agency problem between controlling and minority sharehold

Hasil (Bahasa Indonesia) 1:

financing for firms in countries with low legal protection of investors. Firms in need of financing may therefore attempt to assure investors by listing in exchanges with better rule of law, where violation of financial reporting regulation will result in sanction. Cross-listing firms thus have better accounting quality than their local counter-parts. Nevertheless, Lang et al. (2006) find that earnings quality for cross- 29 listed firms in the U.S. is lower than their U.S. matched samples. They further find that the difference in earnings quality is associated with the legal system in the firm’s home country. Cross-listed firms from countries with low investor protection show more signs of earnings management, suggesting that enforcement by the SEC to foreign firms may be less stringent than for U.S. firms. In addition, Leuz (2006) provides evidence that the low earnings quality of cross-listed firms compared to that of U.S. firms may be caused by high ownership concentration in cross-listed firms.21Sistem hukum dan politik juga mempengaruhi kualitas akuntansi secara tidak langsung melalui insentif terkait dengan reporting.22 keuangan Keuangan pelaporan insentif berasal dari kedua Penawaran dan permintaan untuk informasi. Bola (2001) berpendapat bahwa "semua pihak kontraktor atau merenungkan kontrak dengan perusahaan permintaan informasi tentang kemampuan perusahaan untuk memenuhi kewajiban kontrak. Perusahaan itu setuju untuk dikenakan biaya penyediaan informasi, dan sebagai imbalannya mereka menerima syarat-syarat perdagangan yang lebih baik dari faktor pemilik dan pelanggan"(halaman 131). Pelaporan keuangan adalah suatu hasil keseimbangan dari biaya pengungkapan, yang mencakup biaya mempersiapkan laporan keuangan dan bocor informasi kepemilikan, dan manfaat dari Rapat tertular pihak permintaan untuk information.23Insentif pelaporan keuangan pertama yang mungkin mempengaruhi kualitas akuntansi adalah pengembangan pasar keuangan (panah 4 dalam gambar 1). Permintaan untuk informasi hasil dari peserta pasar perlu mengurangi informasi asimetri. Pilihan buruk terjadi ketika21 kita mengeksplorasi insentif yang terkait dengan kepemilikan konsentrasi di bawah dalam pembahasan kita panah 8 dalam gambar 1, kualitas akuntansi dan kepemilikan.22 insentif ini dalam gambar 1 juga dapat mempengaruhi sistem hukum dan politik. Sebagai contoh, dan Sarbanes Oxley Act di Amerika Serikat berasal dari investor kebutuhan untuk lebih transparan pelaporan keuangan setelah skandal akuntansi beberapa tahun 2001. Leuz (2001) juga berpendapat bahwa alasan bahwa Jerman bergerak menuju sistem common-law pada 1990-an adalah kebutuhan pembiayaan asing setelah penyatuan kembali pada tahun 1989. Diskusi rinci tentang hubungan terbalik ini berada di luar cakupan makalah ini.23 sesuai dengan Burgstahler et al. (2007), argumen ini didasarkan pada asumsi bahwa orang dalam perusahaan memiliki informasi pribadi pada kinerja perusahaan dan memiliki cukup kebijaksanaan dalam menggunakan informasi pribadi dalam pelaporan keuangan. 30 market participants cannot differentiate between good firms and bad firms. Without such differentiation, market participants would “price protect” themselves by increasing costs of financing to firms, and thus only bad firms would be willing to finance at these high costs. Consequently, financial markets would mostly consist of bad firms. Spence (1973) finds that credible signaling can reduce this adverse selection problem. If signaling is more costly to low-quality firms, high-quality firms will signal to the market at lower costs and receive lower costs of financing. Financial reporting is a primary mechanism used to signal to the market. Francis et al. (2005) find that firms in need of external financing voluntarily disclose more information than a country’s minimum requirement and have lower costs of capital. Similarly, Huddart et al. (1999) find that even though liquidity traders are risk-neutral, they prefer to trade on high disclosure exchanges, which in turn motivates firms to raise funds on a high disclosure stock exchange to exploit the liquidity and lower costs of capital at the exchange. Burgstahler et al. (2007) find that public firms in countries with large and highly developed equity markets engage less earnings management than private firms in these countries. They attribute this finding to either 1) stock markets providing incentives for firms to make earnings more informative to reduce costs of capital; or 2) stock markets screening out firms with less informative earnings. Thus, the demand for information from market participants provides incentives for firm managers to improve the quality of financial reporting.Legal and political systems affect accounting quality indirectly through financial market development (arrow 5 in Figure 1). Strong investor protection and lower levels of government expropriation guarantee investors a return on their investments and increases the number of investors who are willing to provide financing. La Porta et al. (1998) find that the character of legal rules and the quality of law enforcement determine the size of capital markets. French law 31 countries have the weakest investor protection and smallest equity and debt markets.24 La Porta et al. (2006) examine the mechanism through which securities laws influence stock market development. While they do not find public enforcement mechanisms, such as independent regulators and criminal sanctions benefit stock markets, they find that laws mandating disclosure and facilitating private enforcement of recovery of investors’ losses benefit stock markets. Countries with highly concentrated political and religious power are also linked to less developed financial markets. Stulz and Williamson (2003) find that a country’s major religion is related to the size of its stock market. Leuz and Oberholzer-Gee (2006) find that firms with political connections are less likely to go public. Because the demand for accounting information is dependent on the nature of financial markets, and the legal and political systems impact the markets, characteristics of the legal and political systems will impact the quality of earnings, a common GAAP notwithstanding.Firms with different financing needs have different incentives for financial reporting (arrow 6 in Figure 1). Shareholders and creditors use different methods to reduce information asymmetry. When investors invest directly through a stock market, they rely on a company’s financial reports and expend resources to acquire information. If, however, investors decide to lend through a bank, they deposit money in the bank and delegate the role of monitoring borrowing firms to the bank. Sun (2006) argues that banks demand less financial reporting than do shareholders because banks have private access to firm managers. Schumpeter (1939) describes the private communication channel as follows: “the banker must not only know what the transaction is which he is asked to finance and how it is likely to turn out, but he must also know the customer, his business, and even his private habits, and get, by frequently ‘talking24 Stulz and Williamson (2003) find that not only legal systems, but also culture and religion are associated with investor protection and the size of financial markets. 32 things over with him,’ a clear picture of the situation” (p. 116 as quoted on p. 383 of Diamond, 1984). Jacobson and Aaker (1993) argue that the relationship between firms and investors in Japan is closer to that in the U.S. because Japanese banks are the biggest investor in Japan and have close ties with firms. The need for financial reporting to reduce information asymmetry is thus lower in Japan. Sun (2006) finds that the usefulness of financial reporting in improving capital investment decisions is decreasing with the level of debt financing. Similarly, Ali and Hwang (2000) find that price leads earnings more in bank-based economies than in market-based economies. Due to low reporting incentives, we would expect lower accounting quality in firms dependent on bank financing.Legal and political systems also affect accounting quality indirectly through capital structures (arrow 7 in Figure 1). In countries with high creditor protection, firms are more easily able to get bank financing at lower cost. In countries with high possibility of government expropriation and corruption, contracting is mostly completed privately to avoid social and political scrutiny, and financial reporting is a less frequently used method to reduce information asymmetry. Earnings quality is thus lower in countries with high dominance of bank financing and political risks.Firms with concentrated ownership and high divergence between cash flow rights and control rights have low incentives for financial reporting (arrow 8 in Figure 1). First, controlling stakeholders are active in management, thus reducing the demand for financial reporting. Ball and Shivakumar (2005) and Burgstahler et al. (2007) examine the earnings quality of private firms in Europe, which are normally controlled by few shareholders and lenders. They find that earnings quality of private firms is lower than that of public firms, although both groups are subject to the same accounting, tax, and auditing standards. They 33 attribute the findings to low demand for high quality financial reporting because stakeholders in private firms have easy access to firms’ information. The low earnings quality of private firms also avoids leakage of proprietary information to the public and is thus an equilibrium outcome. Second, controlling shareholders have incentives to hide their exploitation of the wealth of minority shareholders. Pyramidal and cross shareholding gives an ultimate owner dominant control over a firm without a large investment in ownership. This divergence between control rights and cash flow rights creates an agency problem between controlling and minority sharehold

Hasil (Bahasa Indonesia) 2:

pembiayaan bagi perusahaan di negara-negara dengan perlindungan hukum yang rendah investor. Perusahaan membutuhkan pembiayaan karena itu mungkin mencoba untuk meyakinkan investor dengan daftar di bursa dengan aturan hukum yang lebih baik, di mana pelanggaran peraturan pelaporan keuangan akan mengakibatkan sanksi. Perusahaan lintas-daftar sehingga memiliki kualitas akuntansi yang lebih baik daripada kontra-bagian lokal mereka. Namun demikian, Lang et al. (2006) menemukan bahwa kualitas laba untuk cross 29 perusahaan yang terdaftar di AS lebih rendah dari US mereka cocok sampel. Mereka lebih lanjut menemukan bahwa perbedaan kualitas laba dikaitkan dengan sistem hukum di negara asal perusahaan. Perusahaan lintas terdaftar dari negara-negara dengan perlindungan investor yang rendah menunjukkan tanda-tanda lebih dari manajemen laba, menunjukkan bahwa penegakan hukum oleh SEC untuk perusahaan asing mungkin kurang ketat daripada untuk perusahaan-perusahaan AS. Selain itu, Leuz (2006) memberikan bukti bahwa kualitas laba yang rendah lintas terdaftar perusahaan dibandingkan dengan perusahaan-perusahaan AS dapat disebabkan oleh konsentrasi kepemilikan yang tinggi di lintas terdaftar firms.21 sistem hukum dan politik juga mempengaruhi kualitas akuntansi secara tidak langsung melalui insentif terkait dengan reporting.22 keuangan insentif pelaporan keuangan berasal dari kedua penawaran dan permintaan informasi. Bola (2001) berpendapat bahwa "semua pihak kontraktor atau merenungkan kontrak dengan informasi permintaan tegas tentang kemampuan perusahaan untuk memenuhi kewajiban kontrak. Oleh karena itu perusahaan setuju untuk menanggung biaya penyediaan informasi, dan sebagai imbalannya mereka menerima hal yang lebih baik dari perdagangan dari pemilik faktor dan pelanggan "(p. 131). Oleh karena itu laporan keuangan merupakan hasil keseimbangan dari biaya pengungkapan, yang meliputi biaya pembuatan laporan keuangan dan membocorkan informasi eksklusif, dan dari manfaat dari permintaan kontrak pertemuan pihak untuk information.23 pertama insentif pelaporan keuangan yang mungkin mempengaruhi kualitas akuntansi adalah pengembangan pasar keuangan (panah 4 pada Gambar 1). Permintaan informasi hasil dari kebutuhan pelaku pasar untuk mengurangi asimetri informasi. Adverse selection terjadi ketika 21 Kami mengeksplorasi insentif terkait dengan konsentrasi kepemilikan di bawah ini dalam diskusi kita dari panah 8 pada Gambar 1, Kualitas Akuntansi dan Kepemilikan. 22 Insentif ini pada Gambar 1 juga dapat mempengaruhi sistem hukum dan politik. Sebagai contoh, Sarbanes dan Oxley Act di AS berasal dari kebutuhan investor untuk sistem pelaporan keuangan yang lebih transparan setelah beberapa skandal akuntansi pada tahun 2001. Leuz (2001) juga berpendapat bahwa alasan bahwa Jerman itu bergerak menuju sistem common-hukum di 1990-an adalah kebutuhan untuk pembiayaan luar negeri setelah reunifikasi pada tahun 1989. Sebuah diskusi rinci tentang inverse hubungan ini adalah di luar lingkup tulisan ini. 23 Konsisten dengan Burgstahler et al. (2007), argumen ini didasarkan pada asumsi bahwa orang dalam perusahaan memiliki informasi pribadi pada kinerja perusahaan dan memiliki kebijaksanaan yang cukup besar dalam menggunakan informasi pribadi dalam pelaporan keuangan. 30 pelaku pasar tidak dapat membedakan antara perusahaan yang baik dan perusahaan yang buruk. Tanpa diferensiasi seperti, pelaku pasar akan "harga melindungi" dirinya dengan meningkatkan biaya pembiayaan untuk perusahaan, dan dengan demikian hanya perusahaan yang buruk akan bersedia untuk membiayai di biaya tinggi. Akibatnya, pasar keuangan sebagian besar akan terdiri dari perusahaan-perusahaan yang buruk. Spence (1973) menemukan bahwa sinyal yang kredibel dapat mengurangi masalah ini adverse selection. Jika sinyal lebih mahal untuk perusahaan berkualitas rendah, perusahaan berkualitas tinggi akan sinyal ke pasar dengan biaya yang lebih rendah dan menerima biaya yang lebih rendah dari pembiayaan. Pelaporan keuangan adalah mekanisme utama yang digunakan untuk sinyal ke pasar. Francis et al. (2005) menemukan bahwa perusahaan membutuhkan pendanaan eksternal secara sukarela mengungkapkan informasi lebih dari persyaratan minimum suatu negara dan memiliki biaya modal yang lebih rendah. Demikian pula, Huddart dkk. (1999) menemukan bahwa meskipun para pedagang likuiditas adalah risiko-netral, mereka lebih memilih untuk berdagang di bursa pengungkapan yang tinggi, yang pada gilirannya memotivasi perusahaan untuk mengumpulkan dana pada tinggi pengungkapan bursa untuk mengeksploitasi likuiditas dan biaya yang lebih rendah modal di bursa. Burgstahler et al. (2007) menemukan bahwa perusahaan publik di negara-negara dengan pasar ekuitas yang besar dan sangat berkembang terlibat kurang manajemen laba dari perusahaan-perusahaan swasta di negara-negara ini. Mereka atribut temuan ini baik 1) pasar saham memberikan insentif bagi perusahaan-perusahaan untuk membuat pendapatan yang lebih informatif untuk mengurangi biaya modal; atau 2) Pasar saham menyaring perusahaan-perusahaan dengan pendapatan kurang informatif. Dengan demikian, permintaan untuk informasi dari pelaku pasar memberikan insentif bagi manajer perusahaan untuk meningkatkan kualitas pelaporan keuangan. Sistem hukum dan politik mempengaruhi kualitas akuntansi secara tidak langsung melalui pengembangan pasar keuangan (panah 5 pada Gambar 1). Perlindungan investor yang kuat dan tingkat yang lebih rendah dari investor jaminan pengambilalihan pemerintah laba atas investasi mereka dan meningkatkan jumlah investor yang bersedia memberikan pembiayaan. La Porta et al. (1998) menemukan bahwa karakter aturan hukum dan kualitas penegakan hukum menentukan ukuran pasar modal. Hukum Perancis 31 negara memiliki perlindungan investor terlemah dan terkecil ekuitas dan utang markets.24 La Porta et al. (2006) meneliti mekanisme yang undang-undang sekuritas mempengaruhi perkembangan pasar saham. Sementara mereka tidak menemukan mekanisme penegakan publik, seperti regulator independen dan sanksi pidana menguntungkan pasar saham, mereka menemukan bahwa hukum mandat pengungkapan dan memfasilitasi penegakan swasta pemulihan kerugian investor mendapatkan keuntungan pasar saham. Negara-negara dengan kekuatan politik dan agama sangat terkonsentrasi juga terkait dengan pasar keuangan yang kurang berkembang. Stulz dan Williamson (2003) menemukan bahwa agama besar suatu negara terkait dengan ukuran pasar sahamnya. Leuz dan Oberholzer-Gee (2006) menemukan bahwa perusahaan dengan koneksi politik cenderung untuk go public. Karena permintaan informasi akuntansi tergantung pada sifat dari pasar keuangan, dan dampak sistem hukum dan politik pasar, karakteristik sistem hukum dan politik akan berdampak pada kualitas laba, sebuah GAAP umum meskipun. Perusahaan dengan kebutuhan pembiayaan yang berbeda memiliki insentif yang berbeda untuk pelaporan keuangan (panah 6 pada Gambar 1). Pemegang saham dan kreditur menggunakan metode yang berbeda untuk mengurangi asimetri informasi. Ketika investor berinvestasi secara langsung melalui pasar saham, mereka bergantung pada laporan keuangan perusahaan dan mengeluarkan sumber daya untuk memperoleh informasi. Namun, jika investor memutuskan untuk meminjamkan melalui bank, mereka deposit uang di bank dan mendelegasikan peran pemantauan perusahaan pinjaman ke bank. Sun (2006) berpendapat bahwa bank-bank menuntut pelaporan keuangan kurang dari melakukan pemegang saham karena bank memiliki akses pribadi ke manajer perusahaan. Schumpeter (1939) menggambarkan saluran komunikasi pribadi sebagai berikut: "bankir tidak hanya harus tahu apa transaksi yang ia diminta untuk membiayai dan bagaimana kemungkinan untuk berubah, tetapi ia juga harus tahu pelanggan, bisnis, dan bahkan kebiasaan pribadinya, dan, dengan sering 'berbicara 24 Stulz dan Williamson (2003) menemukan bahwa tidak hanya sistem hukum, tetapi juga budaya dan agama yang terkait dengan perlindungan investor dan ukuran pasar keuangan. 32 hal dengan dia,' gambaran yang jelas tentang situasi "(hal. 116 seperti dikutip dari hal. 383 Diamond, 1984). Jacobson dan Aaker (1993) berpendapat bahwa hubungan antara perusahaan dan investor di Jepang lebih dekat dengan yang di AS karena bank-bank Jepang adalah investor terbesar di Jepang dan memiliki hubungan dekat dengan perusahaan. Kebutuhan pelaporan keuangan untuk mengurangi asimetri informasi dengan demikian lebih rendah di Jepang. Sun (2006) menemukan bahwa kegunaan pelaporan keuangan dalam meningkatkan keputusan investasi modal menurun dengan tingkat pembiayaan utang. Demikian pula, Ali dan Hwang (2000) menemukan harga yang mengarah pendapatan yang lebih dalam ekonomi berbasis bank daripada di negara berbasis pasar. Karena insentif pelaporan rendah, kita akan mengharapkan kualitas akuntansi yang lebih rendah di perusahaan tergantung pada pembiayaan bank. Sistem hukum dan politik juga mempengaruhi akuntansi berkualitas secara tidak langsung melalui struktur modal (panah 7 pada Gambar 1). Di negara-negara dengan perlindungan kreditor tinggi, perusahaan lebih mudah bisa mendapatkan pembiayaan bank dengan biaya lebih rendah. Di negara-negara dengan kemungkinan tinggi pengambilalihan pemerintah dan korupsi, kontraktor sebagian besar diselesaikan secara pribadi untuk menghindari pemeriksaan sosial dan politik, dan pelaporan keuangan adalah metode yang lebih sering digunakan untuk mengurangi asimetri informasi. Kualitas laba dengan demikian lebih rendah di negara-negara dengan dominasi tinggi pembiayaan bank dan risiko politik. Perusahaan dengan kepemilikan terkonsentrasi dan perbedaan tinggi antara hak arus kas dan hak kontrol memiliki insentif yang rendah untuk pelaporan keuangan (panah 8 pada Gambar 1). Pertama, stakeholder mengendalikan aktif dalam manajemen, sehingga mengurangi permintaan untuk pelaporan keuangan. Ball dan Shivakumar (2005) dan Burgstahler et al. (2007) meneliti kualitas laba perusahaan swasta di Eropa, yang biasanya dikendalikan oleh beberapa pemegang saham dan pemberi pinjaman. Mereka menemukan bahwa kualitas laba perusahaan swasta lebih rendah dari perusahaan publik, meskipun kedua kelompok tunduk pada standar akuntansi, pajak, dan audit yang sama. Mereka 33 atribut temuan permintaan rendah untuk pelaporan keuangan berkualitas tinggi karena para pemangku kepentingan di perusahaan swasta memiliki akses mudah ke informasi perusahaan. Kualitas laba yang rendah perusahaan swasta juga menghindari kebocoran informasi eksklusif kepada publik dan dengan demikian hasil keseimbangan. Kedua, pemegang saham pengendali memiliki insentif untuk menyembunyikan eksploitasi mereka dari kekayaan pemegang saham minoritas. Piramida dan lintas kepemilikan saham memberikan pemilik kontrol dominan tertinggi atas suatu perusahaan tanpa investasi besar dalam kepemilikan. Perbedaan antara hak kontrol dan hak aliran kas menciptakan masalah keagenan antara pengendalian dan minoritas sharehold