The association between accounting information and share prices in developing countries: does corruption matter? Online publication date: Thu, 29-Jul-2021
by Michael Deterding; Marius Gros
International Journal of Economics and Accounting (IJEA), Vol. 10, No. 3, 2021
Abstract: The extant value relevance literature documents that the association between accounting information and share prices differs from country to country. Numerous studies attempt to explain the observed differences and identify their determinants, such as the system of corporate governance, the level of shareholder protection, or differences in accounting standards. To date, there is no paper that explicitly addresses the influence of a country's state of development and the level of corruption on the value relevance of accounting information. We fill this gap, as our analysis indicates that accounting information is more value relevant in less developed countries and in countries with high levels of corruption. We argue that in developing countries with high levels of corruption, capital market participants rely in particular on accounting information to compensate for a lack of reliable alternative information sources.
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