Legal Regime and Financial Reporting Quality


  • Accepted by Steve Salterio. We express our gratitude to Patricia O'Brien, Steve Salterio, and two anonymous referees who helped us to significantly improve our paper. We are also grateful for the valuable comments received from Bruno Amann, Paul André, Cédric Lesage, Isabelle Martinez, Stere Mihai, Christine Pochet, Bernard Raffournier, Wojtek Sikorzewski, and Heidi Wechtler. The authors would also like to thank the participants in the research workshops of the CERAG (IAE of Grenoble) in 2013, University of Paris I—Pantheon Sorbonne (IAE-GREGOR) and of the University of Toulouse III (LGC), the 8th International Conference on Governance—Florence 2009, the 31st French Accounting Association Conference—Nice 2010 (especially the discussant, Olivier Vidal), the 33rd European Accounting Association Annual Congress—Istanbul 2010, the American Accounting Association Annual Meeting—San Francisco 2010, the 22nd Asian-Pacific Conference on International Accounting Issues—Gold Coast 2010, the 34th European Accounting Association Annual Congress—Rome 2011. The usual caveat applies.


This article uses the Canadian environment, where French civil law (FCL) in the province of Quebec coexists with common law (CL) in the Rest of Canada (denoted as bijural), to test the thesis of the neutrality of the legal system with regard to financial reporting quality (FRQ). This single-country design allows for a better control over other factors that influence FRQ. The FCL environment appears to encourage firms to publish accounting data of better quality due to the greater liability risk faced by auditors and corporate directors under that regime. These findings, based on 10 years of data and seven attributes of FRQ, are robust to different matching procedures and model specifications. This research contributes to the current debates in Canada as to whether financial market regulation under FCL and CL jurisdictions should be unified under a single CL national securities regulator. At the broader level, the results support claims that a more in-depth understanding of the implementation of civil law and CL is needed rather than gross generalization about the two systems. These results especially call into question that CL regimes are unambiguously superior to civil law regimes in encouraging high-quality financial reports.