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Are Legal Families Related to Financial Reporting Quality?


  • The authors would like to thank Professors Kees Camfferman, Kari Lukka, Masumi Nakashima, Pauline Weetman, Dr Yannis Tsalavoutas, and participants at the research seminar at the Turku School of Economics for their help. They are especially thankful for the contributions of two anonymous reviewers for improving their work. They gratefully acknowledge financial support from the Foundation for Economic Education and the Turku School of Economics.


A large body of financial accounting research explores the quality of accounting in different countries. An important assumption in most of that research is that common law provides a firmer foundation for good accounting transparency than civil law. Researchers usually regress their proxy for accounting quality on an indicator variable that designates the firm's country as a common or civil law jurisdiction (along with other regressors). But what is the support for that nearly universal assumption? This study addresses that question. It traces the distinctions made by legal scholars that characterize the two ‘families’. It analyzes La Porta et al. (1998), which is the nearly universal citation to support the civil/common dummy, and assesses the design and development of research designs that use law in accounting studies. It concludes that the use of the civil/common distinction as applied in accounting studies cannot be supported, and offers suggestions for how to better investigate the ways in which the law interacts with financial reporting.