Institutional factors: political economy, legal systems, and social norms

Yuan Chen Aj and T.J. Wong

Chapter 14 in Handbook on the Financial Reporting Environment, 2025, pp 266-285 from Edward Elgar Publishing

Abstract: Accounting quality varies significantly across countries due to institutional factors such as political economy, legal systems, and social norms. These factors shape a country's contracting and market development, influencing firms’ corporate governance and accounting practices by affecting their ownership and corporate structures. This institutional framework sheds light on cross-country differences in accounting quality. First, there is no “one size fits all” approach to accounting quality. Second, the adoption of IFRS by many countries does not necessarily lead to a global convergence toward higher accounting standards. Third, implementing advanced accounting standards in emerging economies can result in unintended consequences due to their unique institutional contexts. Finally, firms in relational economies often develop alternative communication channels with arm’s-length shareholders through embedded intermediaries. This chapter also examines how institutions influence new technologies in stakeholder communication and the interaction between governance models and ESG reporting.

Keywords: Institutional factors; Political economy; Legal systems; Social norms; Accounting quality; Stakeholder and shareholder governance models (search for similar items in EconPapers)
Date: 2025
ISBN: 9781800888678
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