This study examines the association between the extent of legal intensity in firms’ financial reports and their financial reporting quality. Firms’ financial reports contain embedded legal content arising from contracts and agreements underlying their operations. Accountants interpret the contract provisions and conditions to determine the timing and amounts recognized in financial reports. Legal content is technical and complex, creating a potential for misinterpretation and errors in accounting for transactions, thus adversely affecting financial reporting quality. Using legal tags in companies’ 10-K XBRL filings, I construct a measure of the legal intensity of financial reports. I document an inverse association between legal intensity of financial reports and financial reporting quality, proxied by accruals quality, analyst earnings forecast errors and dispersion, earnings informativeness, and accruals informativeness. The inverse association is driven by firm-specific legal content rather than common legal content. There is also some evidence that the inverse association is strengthened by high operational uncertainty and attenuated by accounting experts on the audit committee. Collectively, this study increases our understanding of challenges in translating legal content into financial reports and the benefit of audit committee accounting experts in this setting. / Business Administration/Accounting
| Identifer | oai:union.ndltd.org:TEMPLE/oai:scholarshare.temple.edu:20.500.12613/4780 |
| Date | January 2020 |
| Creators | Li, Mengtian |
| Contributors | Krishnan, Jayanthi, Krishnan, Jagan, Byzalov, Dmitri, Su, Barbara, Zhao, Zhigen |
| Publisher | Temple University. Libraries |
| Source Sets | Temple University |
| Language | English |
| Detected Language | English |
| Type | Thesis/Dissertation, Text |
| Format | 108 pages |
| Rights | IN COPYRIGHT- This Rights Statement can be used for an Item that is in copyright. Using this statement implies that the organization making this Item available has determined that the Item is in copyright and either is the rights-holder, has obtained permission from the rights-holder(s) to make their Work(s) available, or makes the Item available under an exception or limitation to copyright (including Fair Use) that entitles it to make the Item available., http://rightsstatements.org/vocab/InC/1.0/ |
| Relation | http://dx.doi.org/10.34944/dspace/4762, Theses and Dissertations |
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