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Financial Reporting Quality in Emerging Economies

Empirical Evidence from Brazil and South Africa


Gregor Hagemann

Contrary to their increasingly important role in the global economy, little is known so far about the financial reporting practices in emerging economies. This study therefore analyses the financial reporting practices of listed firms in Brazil and South Africa. It also investigates the determinants of financial reporting quality and its effect on information asymmetries. In addition, the author compares the results for the two emerging economies to those for Germany representing a developed economy. The empirical findings have several implications for researchers and lecturers as well as for practitioners, such as preparers and users of financial reports, legislators, standard setters and auditors.

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5 Research design


5   Research design

Given the conceptual foundation of this study, the design of the empirical investigations in a cross-country setting is outlined throughout this chapter. After the description of the empirical field (section 5.1), section 5.2 describes the methodology of data collection for each of the three FRQ measures (accruals-based, disclosure index-based, readability measure). Section 5.3 presents the applied methods to analyze the collected data.

5.1   The empirical field

5.1.1   Sample selection

The study compares the FRQ in the two emerging economies Brazil and South Africa to the FRQ in Germany which is regarded as a developed country benchmark concerning comprehensive reporting activities.813 The empirical investigation of FRQ requires a sample which is appropriate to describe financial reporting practices, to measure FRQ indirectly and directly, to determine influencing factors of FRQ as well as to analyze capital market consequences within and across the three economies. The selection of large companies is adequate, since these entities are meaningful for the economy and company data is largely available.

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