LEGAL INSTITUTIONS AND TIMELINESS OF EARNINGS

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Eric Liluan Chu, Woody Wu

DOI:10.22495/cocv6i4sip2

Abstract

This study examines systematic differences in relations between the timeliness of earnings as measured by the price-leading-earnings effects and country-specific legal institutional factors. We use a sample of firm-level observations during the period from1989 to1999 in 22 East Asian and Western European countries that exhibit different levels of legal institutional features, and find evidence of earnings lacking timeliness. We hypothesize that the informativeness of prices about future earnings increases with better legal institutions, namely disclosure quality, investor protection and legal enforcement. Our results are consistent with these predictions. Furthermore, multiple regression results show that each of the three country-specific legal institutional features is an important determinant of the timeliness of earnings and adds the incremental contribution above and beyond the others.

Keywords: Legal Institutions, Disclosure Quality, Investor Protection, Legal Enforcement, Timeliness of Earnings

How to cite this paper: Chu, E. L., & Wu, W. (2009). Legal institutions and timeliness of earnings. [Special issue]. Corporate Ownership & Control, 6(4-5), 509-523. http://doi.org/10.22495/cocv6i4sip2