Ky h eo is, Alexios; Ch is o i, Ky iakos; Sol ani, Milad
A icle
Examining he alue ele ance o inancial s a emen s in
Eu opean coun ies: he impo ance o legal o igins on
c oss lis ing decisions
Cogen Business & Managemen
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Taylo & F ancis G oup
Sugges ed Ci a ion: Ky h eo is, Alexios; Ch is o i, Ky iakos; Sol ani, Milad (2024) : Examining he alue
ele ance o inancial s a emen s in Eu opean coun ies: he impo ance o legal o igins on c oss
lis ing decisions, Cogen Business & Managemen , ISSN 2331-1975, Taylo & F ancis, Abingdon, Vol.
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ISSN: 2331-1975 (Online) Jou nal homepage: www. and online.com/jou nals/oabm20
Examining he alue ele ance o financial
s a emen s in Eu opean coun ies: he
impo ance o legal o igins on c oss lis ing
decisions
Alexios Ky h eo is, Ky iakos Ch is ofi & Milad Sol ani
To ci e his a icle: Alexios Ky h eo is, Ky iakos Ch is ofi & Milad Sol ani (2024) Examining
he alue ele ance o financial s a emen s in Eu opean coun ies: he impo ance o legal
o igins on c oss lis ing decisions, Cogen Business & Managemen , 11:1, 2340559, DOI:
10.1080/23311975.2024.2340559
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Cogen Business & ManageMen
2024, VoL. 11, no. 1, 2340559
Examining he alue ele ance o inancial s a emen s in Eu opean
coun ies: he impo ance o legal o igins on c oss lis ing decisions
alexios Ky h eo isa , Ky iakos ch is o ib and Milad sol ania
aDepa men o accoun ing, economics and Finance, school o Business adminis a ion, eu opean uni e si y Cyp us, nicosia,
Cyp us; bsYs eMa Resea ch Cen e, school o Business adminis a ion, eu opean uni e si y Cyp us, nicosia, Cyp us
ABSTRACT
in oday’s globalized compe i i e landscape se e al dimensions such as labou , ma ke s
and capi al a e in eg a ed. as a esul , companies a emp o gain inbound o eign
capi al. o achie e ha hey in es iga e away coun ies o hos hei ope a ions and o
ade hei sha es. While he concep o c oss-lis ing s a egy p o ides se e al bene i s
o companies, i has also c i ical challenges ha companies a e called o ackle. Di e en
legal sys ems se di e en bounda ies o in es o s powe . Wi h he applica ion o
c i e ion sampling, we u ilize a mul iple eg ession analysis in he eu opean s ock
exchanges, o a pe iod o eigh yea s, and we in es iga ed he impac o legal o igins
on inancial s a emen s’ alue ele ance. he indings indica e ha common law
coun ies o e a mo e bene icial en i onmen o c oss-lis ing s a egies, as hey
demons a e g ea e alue ele ance in inancial s a emen s compa ed o ci il law
coun ies. speci ically, ou esul s show ha bo h P o i o loss and Balance shee i ems
a e mo e ele an in common law coun ies compa ed o ci il law coun ies.
1. In oduc ion
in oday’s u bulence en i onmen , globaliza ion is gaining he momen um and c ea es in eg a ed ma -
ke s ac oss he globe. a majo dimension o globaliza ion is he in eg a ion o capi al o in o he wo ds
in eg a ion o inancial esou ces (nickels e al., 2012). Unde hose ci cums ances, he legal p o ec ion o
he home coun y loses i s powe and companies in es iga e al e na i e coun ies in an a emp o a ac
and inc ease he in low o o eign capi al (shi e al., 2012). his ac i i y is also known as c oss-lis ing
(Foe s e & Ka olyi, 1993). se e al bene i s o c oss-lis ing ha e discussed in he li e a u e, including access
o capi al, g ea e in o ma ion low, imp o emen o i ms’ image, and g ea e inno a ion pe o mance
(Ma e al., 2022; Rei e , 2020; Yang & lai, 2021). Yang and lai (2021), o ins ance show ha success ul
c oss-lis ing lead o highe i ms’ epu a ion, while Ma e al. (2022) ind ha c oss-lis ed co po a ion p es-
en g ea e inno a ion pe o mance. On he o he hand, i ms ha unde ake he s a egic decision o
c oss-lis ing mus adap hei disclosu e in o ma ion wi h he s anda ds o he hos ing coun y (leuz,
2006). he ins i u ional iewpoin o o ganiza ions a gues ha o ganiza ional and manage ial decisions
a e in luenced by he di e en en i onmen al se ings such as egula ions, and p o essional associa ions
ha a y om coun y o coun y (suchman, 1995). Unde his p ism, g ea a en ion has o be gi en o
he legal o igins o coun ies and how hose o igins a ec he alue ele ance o co po a ions’ inancial
s a emen s. he alue ele ance o inancial s a emen s is o u mos impo ance o c oss-lis ed compa-
nies due o he hea y eliance o o eign in es o s on hese s a emen s when making in es men choices.
legal o igins a e di ided in o wo b oad ca ego ies namely, ci il and common law. On he one hand, ci il
law, p e alen in con inen al eu ope, la in ame ica, and pa s o asia, de i es i s legal p inciples p ima ily
© 2024 he au ho (s). Published by in o ma uK Limi ed, ading as aylo & F ancis g oup
CONTACT alexios Ky h eo is [email p o ec ed] Depa men o accoun ing, economics and Finance, school o Business
adminis a ion, eu opean uni e si y Cyp us, nicosia 2404, Cyp us.
h ps://doi.o g/10.1080/23311975.2024.2340559
his is an open access a icle dis ibu ed unde he e ms o he C ea i e Commons a ibu ion License (h p://c ea i ecommons.o g/licenses/by/4.0/), which
pe mi s un es ic ed use, dis ibu ion, and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly ci ed. he e ms on which his a icle has been
published allow he pos ing o he accep ed Manusc ip in a eposi o y by he au ho (s) o wi h hei consen .
ARTICLE HISTORY
Recei ed 2 June 2023
Re ised 30 Ma ch 2024
accep ed 4 ap il 2024
KEYWORDS
Value ele ance; legal
o igins; common law;
ci il law; c oss lis ing;
iFRs
REVIEWING EDITOR
len iu W igh , De
Mon o Uni e si y
Facul y o Business and
law, Uni ed Kingdom
SUBJECTS
Financial accoun ing;
in e na ional accoun ing;
s a egic Managemen
2 a. KY hReO is e al.
om w i en law, s a u es and codes. On he o he hand, common law, o igina ing in england and sp ead
h ough coloniza ion, hea ily elies on judicial decisions, p eceden s, and cus oma y law. he speci ic
cha ac e is ics o each legal sys em se e as a ca alys in de e mining he deg ee o alue ele ance o
inancial s a emen s. o da e, a signi ican numbe o s udies conduc ed sepa a e empi ical in es iga ions
on a) he di e ences among hese legal o igins, b) ele ance, and c) c oss-lis ing. hence, he li e a u e
ha examines all h ee elemen s oge he is limi ed and inconclusi e. Based on his signi ican gap, he
aim o his a icle, is o shed ligh on he ela ionship be ween hese h ee ac o s by examining he
impac o legal o igins on he alue ele ance o inancial disclosu e and by highligh ing he impo ance
o ha on c oss-lis ing decisions. By p o iding new insigh s in espec o he legal o igins, he esul s can
be used o di ec companies ha a e in e es ed in a ac ing o eign capi al h ough c oss lis ing. in pa -
icula , he con ibu ion o his a icle lies in ad oca ing ha common law coun ies o e a mo e ad an-
ageous en i onmen o c oss-lis ing s a egies, gi en hei demons a ed g ea e alue ele ance in
inancial s a emen s compa ed o ci il law coun ies.
his a icle consis s o i e main pa s. he nex pa discusses he heo e ical ounda ion o alue
ele ance and explains he main challenges on c oss lis ing decisions. he ea e , we explain he esea ch
s a egy, ou da ase p ocedu e and measu emen . he ou h pa discusses he esul s and compa es
he main indings o his s udy wi h he mains eam li e a u e. Finally, we explain he manage ial impli-
ca ions o ou esul s and ecommend di ec ions o u u e esea ch in he ield.
2. Li e a u e e iew
2.1. Value ele ance
Many s udies can be ound on he o li e a u e ha in es iga es he alue ele ance o inancial s a e-
men s. he i s esea che s o discuss his opic we e Ball and B own (1968), who s udied he co ela ion
be ween pe o mance and accoun ing p o i . since hen, many esea che s ha e expanded upon his
opic. hung and sub amanyam (2007) examined 80 ge man companies and compa ed inancial s a e-
men s p epa ed unde ias/iFRs wi h hose p epa ed acco ding o ge man s anda ds. hey ound ha
he e was no change in he ele ance o ea nings o book alue o equi y, bu adjus men s made o
balance shee da a due o he adop ion o ias we e ele an . in con as , Ba o e al. (2005) as well as
Je makowicz e al. (2007) ound ha companies ha olun a ily adop ed ias had an inc ease in he
ele ance o ea nings. Ba h e al. (2008) s udied a la ge sample o 319 companies om 21 coun ies
and ound ha i ms adop ing ias had a highe deg ee o ele ance as well. ho on and se a eim (2007)
s udied he ele ance o inancial s a emen s in he UK, F ance, i aly, and spain using accoun ing adjus -
men s a ising om econcilia ion s a emen s. hey ound ha adjus men s o ea nings inc eased ele-
ance in he UK, F ance, and i aly, bu no in spain. capkun e al. (2008) ound simila esul s o he UK
and eigh o he eu opean coun ies. speci ically, hey ound ha adjus men s o ea nings con ibu ed o
ele ance, bu adjus men s o he book alue o equi y did no . chalme s e al. (2011) ound ha
aus alian businesses ha adop ed iFRs manda o ily had a highe deg ee o ele ance o ea nings and
he same deg ee o ele ance o book alue o equi y han aus alian businesses using aus alian s an-
da ds du ing 1990–2004. Ky h eo is (2014) and Ky h eo is and cons an inou (2016), using he de ini ions
o ele ance and eliabili y as hey a e desc ibed by he concep ual amewo k, ound an inc ease in
ele ance a e he adop ion o iFRs, bu no change in eliabili y. simila ly, hans e al. (2015), in es iga ed
he e ec o iFRs adop ion as well ha dec easing ea nings managemen and inc easing ele ance we e
associa ed wi h he adop ion o iFRs. schöndube-Pi chegge and schöndube (2017) used game heo y
o in es iga e he ela ionship be ween ele ance and eliabili y and emphasized he imeliness and
accu acy o in o ma ion. she li a (2019) ound ha accoun ing in o ma ion ele ance inc eased
in es men - ela ed decisions, bu insu icien anspa ency in de eloping coun ies hinde ed he ela ion-
ship be ween eliabili y and in es men decisions. K a e al. (2020) in es iga ed he e ec o manda o y
iFRs accep ance on c edi De aul swaps o ecas ing models and ound ha while iFRs adop ion
inc eased accoun ing quali y and p o ided bene i s o equi y in es o s, he e was no clea e idence o
simila bene i s o deb in es o s. las ly, Ky h eo is and sol ani (2023) ound ha he ele ance o
semi-annual inancial s a emen s is g ea e han ha o annual s a emen s.
cOgen BUsiness & ManageMen 3
2.2. Rele ance and legal sys em
he legal sys em is ypically di ided in o wo ca ego ies: common law and ci il law. common law coun-
ies p io i ize he judicia y’s ole in in e p e ing and en o cing he law, whe eas ci il law coun ies
emphasize codi ied laws and he legisla u e’s ole in shaping legal amewo ks. his dis inc ion leads o
di e ing emphases on inancial epo ing p ac ices. common law coun ies place g ea e impo ance on
he in o ma ion p o ided by inancial s a emen s, while ci il law coun ies ocus mo e on egula o y
compliance. in ci il law coun ies, he go e nmen es ablishes accoun ing p inciples h ough legisla ion,
esul ing in a s ong ax o ien a ion in inancial epo ing. c edi ins i u ions a e he p ima y sou ce o
ex e nal inance o he p i a e sec o , leading o bank-based inancial sys ems. in con as , p o essional
egula o y bodies se accoun ing p inciples in common law coun ies, and ex e nal capi al o business
en i ies comes p ima ily om he capi al ma ke . he e o e, inancial epo ing in common law coun ies
has a s ong in es o o ien a ion, esul ing in ma ke -based inancial sys ems (Filip e al., 2015; he as
e al., 2009; la Po a e al., 1998; 2008).
empi ical esea ch has in es iga ed how he quali y and ele ance o inancial s a emen s di e ac oss
common law and ci il law coun ies. While se e al s udies ha e examined he ela ionship be ween he
quali y o inancial s a emen s, ele ance, and legal sys ems, hei indings a e con adic ing. Fo ins ance,
Filip e al. (2015), inds ha he ci il law amewo k in F ance incen i izes companies o disclose supe io
quali y inancial in o ma ion. his is due o he ampli ied exposu e o liabili y, ha audi o s and co po a e
di ec o s ace unde he a o emen ioned legal egime. in con as , Kang (2003) ound ha he legal
egime has a ma ginal impac on he alue- ele ance o accoun ing in o ma ion, sugges ing ha com-
mon law may be associa ed wi h highe accoun ing ele ance. addi ionally, Wulanda i (2005) ound ha
he quali y, accep abili y, and en o ceabili y o accoun ing s anda ds a e impo an o he use ulness o
accoun ing ea nings in a coun y, and ha he accoun ing ins i u ional en i onmen has a s onge pos-
i i e associa ion wi h he alue ele ance o ea nings han he legal en i onmen has. Finally, acco ding
o lindahl and schadéwi z (2013), he belie ha common law o e s a mo e s able basis o ensu ing
accoun ing anspa ency han ci il law is being ques ioned. hey a gue ha he applica ion o he ci il/
common classi ica ion in accoun ing esea ch lacks suppo . O e all, he indings om empi ical esea ch
on he ela ionship be ween legal sys ems and inancial epo ing a e inconsis en and his a icle aims
o con ibu e o his discussion.
2.3. Value ele ance and c oss-lis ed companies; manage ial implica ions
globaliza ion and in ense compe i ion, lead co po a ions o in es iga e ways o a ac o eign capi al.
he mos common s a egy o achie ing inbound o eign capi al is ia c oss-lis ing which e e s o lis a
public co po a ion’s sha es in o eign s ock exchanges simul aneously wi h he domes ic (Diniz-Maganini
e al., 2023). Beyond he a ac ion o o eign in es men , he li e a u e poin s ou se e al bene i s o
companies ha inco po a e in c oss-lis ing. Fo ins ance, Yang and lai (2021), a gue ha c oss-lis ing ac
as he pipeline o imp o ed capi al s uc u e. Rei e (2020) no e ha c oss-lis ing enhances s ock pe o -
mance and inc eased hence liquidi y. Fu he , c oss-lis ing is also associa ed wi h imp o ed social pe o -
mance (Boubak i e al., 2016). On he o he hand, lis ing in a o eign s ock exchange is associa ed wi h
signi ican cos and manage ial e o s, and he lis ing decision including he des ina ion is a u mos
impo ance (Diniz-Maganini e al., 2023).
he ele ance o inancial s a emen s is impo an o companies ha c oss-lis because i a ec s he
company’s abili y o a ac and e ain o eign in es o s. Upon c oss-lis ing on a o eign s ock exchange,
a company becomes subjec o he disclosu e equi emen s and egula ions en o ced by ha s ock
exchange. hese egula ions ypically manda e companies o u nish inancial s a emen s con o ming o
ei he in e na ional Financial Repo ing s anda ds (iFRs) o gene ally accep ed accoun ing P inciples
(gaaP) o he o eign coun y. he impo ance o inancial s a emen s o c oss-lis ed en i ies is pi o al
as o eign in es o s hea ily ely on hem o in o m hei in es men decisions. i a company’s inancial
s a emen s lack ele ance o anspa ency, o eign in es o s may exhibi hesi ance in in es ing, esul ing
in a diminished alua ion and es ic ed access o capi al. hence, c oss-lis ed companies mus ensu e
he ele ance and accu acy o hei inancial s a emen s, he eby p o iding a clea depic ion o he
4 a. KY hReO is e al.
company’s inancial s anding and pe o mance. his en ails deli e ing clea and comp ehensible disclo-
su es, adhe ing o accoun ing s anda ds, and u nishing imely and p ecise inancial epo s. By adhe ing
o hese p ac ices, c oss-lis ed companies can bols e in es o con idence, augmen access o capi al,
consequen ly os e ing imp o ed inancial pe o mance and g ow h (chen e al., 2019; Daske e al., 2013;
lang e al., 2006; leuz, 2006).
2.4. Hypo hesis de elopmen
common law coun ies a e o en cha ac e ised as ma ke -o ien ed because o many ac o s men ioned
al eady in he li e a u e e iew. Fo example, he common law ju isdic ions p io i ize he in o ma ion
con eyed in inancial s a emen s, while ci il law ju isdic ions emphasize egula o y adhe ence. in ci il
law ju isdic ions, accoun ing p inciples a e se by he go e nmen h ough legisla ion, leading o a sig-
ni ican ocus on ax conside a ions wi hin inancial epo ing. Finally, in common law ju isdic ions,
accoun ing p inciples a e ypically es ablished by p o essional egula o y o ganiza ions, while ex e nal
unding o business en i ies p ima ily o igina es om he capi al ma ke . in addi ion, he e a e o he
se e al easons why common law coun ies can be cha ac e ized as ma ke o ien ed. Fi s ly, hei legal
sys ems ha e a well-es ablished adi ion o p o ec ing p ope y igh s, which o e s a s able and p edic -
able en i onmen o businesses o ope a e. secondly, he emphasis on indi idualism os e s inno a ion
and en ep eneu ship, which a e i al componen s o a ma ke -o ien ed economy. hi dly, hese coun ies
exhibi limi ed go e nmen in e en ion in economic a ai s, esul ing in ewe es ic ions on business
ac i i ies, allowing o g ea e adap abili y o changing ma ke condi ions. Fou hly, common law sys ems
a e known o hei lexibili y, which is c ucial o businesses o espond apidly o new challenges and
oppo uni ies. Fi h, hei s ong legal en o cemen mechanisms help o en o ce con ac s and se le dis-
pu es e icien ly, c ea ing a high le el o con idence among in es o s and businesses, u he bols e ing
economic g ow h. addi ionally, common law coun ies p io i ize he en o cemen o con ac s and p o-
ec ion o p ope y igh s, os e ing a s able business en i onmen ha enhances he anspa ency and
eliabili y o inancial epo ing. hey also ha e well-es ablished accoun ing and inancial epo ing p ac-
ices ha c ea e widely ecognized s anda ds and p ac ices, acili a ing he assessmen o inancial pe -
o mance by in es o s and analys s. Fu he mo e, a de eloped capi al ma ke in as uc u e p o ides
companies wi h access o a la ge pool o in es o s, inc easing demand o anspa en and eliable
inancial epo ing. Finally, s ingen egula o y amewo ks in common law coun ies manda e adhe -
ence o highe s anda ds o inancial epo ing and disclosu e, hus enhancing he c edibili y and use ul-
ness o inancial s a emen s (Beck e al., 2002; Beck & le ine, 2005; g a , 2005; 2008; la Po a e al.,
1998; Mahoney, 2002). collec i ely, hese ac o s con ibu e o he assump ion ha he inancial s a e-
men s o companies ha ope a e in common law coun ies will demons a e a highe deg ee o ele-
ance. o empi ically in es iga e his assump ion he ollowing hypo hesis is o mula ed:
H1: he inancial s a emen s o companies ha ope a e in common law coun ies ha e a g ea e deg ee o
alue ele ance in compa ison wi h companies ha ope a e in ci il law coun ies.
3. Resea ch design
his s udy elies on mul iple eg ession analysis applied in panel da a. speci ically, we ocus ou in es i-
ga ion on he las nine yea s, hence on he inancial yea s om 2014 o 2022. Da a collec ion was pe -
o med using he documen mining echnique wi h he u iliza ion o Re ini i eikon ( o me ly known as
homson’s Reu e s) o ex ac bo h inancial s a emen s and ma ke -based da a o he unde -in es iga ion
companies. he da a se o his s udy consis s o companies lis ed on he s ock exchanges o 35 coun-
ies. speci ically, he sample include aus ia, Belgium, Bosnia and he zego ina, Bulga ia, c oa ia, cyp us,
czech Republic, Denma k, es onia, Finland, F ance, ge many, g eece, hunga y, iceland, i eland, i aly,
la ia, li huania, luxembou g, Macedonia, ne he lands, no way, Poland, Po ugal, se bia, Romania,
Russia, slo akia, slo enia, spain, sweden, swi ze land, Uk aine, and Uni ed Kingdom.
o ensu e consis ency and g ea e compa abili y o ou esul s, a i e-s ep c i e ion p o ocol was
applied. Fi s , we include only he co po a ions which a e ac i ely engage in c oss-lis ing. second, we
cOgen BUsiness & ManageMen 5
include in ou da ase we include only i ms ha apply he in e na ional Financial Repo ing s anda ds
(iFRs). hi d, inancial se ices companies a e excluded om he sample as hei accoun ing p ac ices,
including he acc ual gene a ing p ocess, a y signi ican ly (ahmed e al., 1999). Fou h, since p io
esea ch conduc ed by collins e al. (1997) and B own e al. (1999) sugges s ha only posi i e obse a-
ions o he book alue o equi y should be conside ed o measu e alue ele ance, we only include
obse a ions wi h posi i e book alue o equi y. Finally, obse a ions o companies wi h iscal yea di -
e en han 1/1–31/12, and he 2% o ex eme alues, we e elimina ed om he sample. as esul o his
p ocess he inal sample consis o 21,195 yea -company obse a ions. able 1 depic s he implemen a-
ion o his p ocess, illus a ing he composi ion o ou inal da ase .
Mo eo e , o examine he e ec o legal sys ems we ha e classi ied ou obse a ions o wo main
ca ego ies. By u ilizing he classi ica ion o legal sys ems as is p o ided by Wo ld Bank (2021), we axon-
omized ou sample in o ci il and common laws based on hei coun ies legal sys em. able 2 shows
he pe cen age dis ibu ion o ou sampling based on he coun y’s legal sys em.
3.1. Measu emen o ele ance
in o de o cap u e he deg ee o alue ele ance, we examine he associa ion be ween u u e ma ke
p ice, book alue o equi y and ea nings pe sha e (Ba h e al., 2008; F ancis & schippe , 1999;
Ky h eo is & cons an inou, 2016; Ky h eo is & sol ani, 2023). Fu he , we u ilize he inc emen al
app oach as explained by Ba o e al. (2005) by adding he legal sys ems as dummy a iables o
examine he ma ginal e ec o legal sys em on alue ele ance. We he e o e o mula e he ollowing
equa ion:
P a a a aE a a E u
i i i i i i + +
=++ + + ∗ + ∗ +
6 01 3 4 5 6
D D EQPS D APS
2EQPS APS (1)
Pi +6 = Ma ke sha e p ice a ime + 6 mon h. eQPsi = Book alue o equi y/numbe o common sha es
ou s anding. eaPsi = ea ning be o e ax and ex a o dina y i ems/numbe o common sha es
Table 1. sample selec ion p ocess.
(Ν)
o iginal sample 55,522
Minus:
obse a ions o companies ha do no ollow iFRs 22,601
obse a ions o companies in he inancial and no speci ied sec o 9,407
obse a ions o companies / iscal yea di e en om 1/1 o 31/12 950
obse a ions o companies wi h nega i e book alue o equi y 943
ou lie s (2%) 426
Final sample 21,195
Table 2. Final sample pe coun y.
Coun y Legal sys em
% o he o al
sample Coun y Legal sys em
% o he o al
sample
aus ia Ci il law 1.00% Li huania Ci il law 0.30%
Belgium Ci il law 2.80% Luxembou g Ci il law 0.28%
Bosnia and He zego ina Ci il law 1.34% Macedonia Ci il law 0.85%
Bulga ia Ci il law 2.67% ne he lands Ci il law 2.20%
C oa ia Ci il law 1.75% no way Ci il law 3.80%
Cyp us Common Law 0.25% Poland Ci il law 6.03%
Czech Republic Ci il law 0.23% Po ugal Ci il law 0.75%
Denma k Ci il law 2.08% se bia Ci il law 1.71%
es onia Ci il law 0.35% Romania Ci il law 0.48%
Finland Ci il law 3.63% Russia Ci il law 2.50%
F ance Ci il law 6.43% slo ak Republic Ci il law 0.08%
ge many Ci il law 10.22% slo enia Ci il law 0.40%
g eece Ci il law 2.03% spain Ci il law 3.75%
Hunga y Ci il law 0.42% sweden Ci il law 10.61%
iceland Ci il law 0.09% swi ze land Ci il law 2.32%
i eland Common Law 0.30% uk aine Ci il law 0.19%
i aly Ci il law 5.13% uni ed Kingdom Common Law 22.88%
La ia Ci il law 0.16%
6 a. KY hReO is e al.
ou s anding. D = Dummy a iable equals o 1 o he common law coun ies and 0 o ci il law coun ies.
ui +6 = esiduals.
a highe abili y o p edic u u e s ock p ices sugges s a g ea e deg ee o alue ele ance be ween
inancial in o ma ion and u u e s ock p ices. o accoun o di e ences be ween ci il and common law
coun ies, a dummy a iable ‘D’ is included in he equa ion, aking he alue o ‘1’ and ‘0’ o common
law and ci il law coun ies, espec i ely. We an icipa e posi i e and s a is ically signi ican coe icien s o
a iables ‘α2’ and ‘α3’, indica ing ha book alue o equi y and ea nings pe sha e a e ele an . addi ionally,
we expec posi i e and s a is ically signi ican coe icien s o a iables ‘α4’ and ‘α5’, indica ing ha hese
wo i ems e lec ed in he inancial s a emen s o common law coun ies a e mo e ele an han ci il law
coun ies.
he second app oach used, examines he impac o balance shee in o ma ion on u u e sha e p ice.
as F ancis and schippe (1999) explain, o e he yea s he abili y o ea nings indica o s o explain he
i ms alue c ea ion e odes since co po a ions deployed asse s o c ea e alue o hei sha eholde s.
hence, we apply as well hei p oposed model which includes i ems om he balance shee o cap u e
he alue ele ance. simila o i s model as men ioned abo e we also include he coun y’s legal sys em
unde he p ism o he inc emen al app oach. hence he ollowing equa ion is o mula ed.
P D APS LPS D APS D LPS u
i i i i i i + +
=++ + + + +
6 01 2 3 4 5 6
αα α α α α
**
(2)
Pi +6 = Ma ke sha e p ice a ime + 6 mon hs. aPsi = Book alue o o al asse s/numbe o common
sha es ou s anding. lPsi = Book alue o o al liabili ies/numbe o common sha es ou s anding. D =
Dummy a iable equals o 1 o he common law coun ies and 0 o ci il law coun ies. ui +6 = esiduals.
Using he same app oach as be o e, we expec a posi i e and s a is ically signi ican coe icien o
a iable ‘α2’ and a nega i e and s a is ically signi ican coe icien o ‘α3’, indica ing ha o al asse s and
o al liabili ies a e ele an . We expec a nega i e coe icien o o al liabili ies since an inc ease in lia-
bili ies is expec ing o ha e a nega i e impac on u u e ma ke p ices. Finally, we an icipa e a posi i e
and s a is ically signi ican coe icien o a iable ‘α4’ and a nega i e and s a is ically signi ican coe i-
cien o a iable ‘α5’, indica ing ha hese wo i ems e lec ed in he inancial s a emen s o common
law coun ies a e mo e ele an han ci il law coun ies.
4. Empi ical esul s
We u ilize wo di e en echniques o da a analysis. adi ional panel da a analysis echnique mainly
includes he andom and ixed e ec models. he hausman es s indica es ha ou da ase be e i s o
ixed e ec model. howe e , s a ic models ha e limi ed capabili y o add essing endogenei y issues
(Ba ak & sha ma, 2024). Fo ha eason, we also apply he gene alized Me hod o Momen s (gMM)
which add esses he challenge o endogenei y and can mo e accu a ely es ima e a iable a ia ions o e
ime (Ullah e al., 2024). gMM is a echnique ha es ima es based on ins umen al a iables and is con-
side ed mo e powe ul han o he dynamic es ima o s such as 2sls (siddiqui & ahmed, 2013). We exam-
ine ou hypo hesis u ilizing he wo me hods o measu ing he alue ele ance as desc ibed in he
p e ious chap e . While he main analysis was conduc ed using he gene alized Me hod o Momen s
(gMM), we also p esen he esul s o he ixed e ec s linea model as a obus ness check. as a i s s ep
we examine he alue ele ance unde he lens o ea nings and book alue o equi y in a ela i e man-
ne . as i is p esen ed in able 3, model 5, bo h explana o y a iables, equi y pe sha e (eQPs) and
income pe sha e (eaPs) p esen posi i e coe icien s (0.190 and 0.225 espec i ely) and s ong s a is ical
signi icance (p < 0.01).
as a second s ep we include he dummy a iable o common law o examine he impac o legal
o igin on ou depended a iable. as i is indica ed in he able, he ea nings a iables emain posi i e
and s a is ically signi ican , while bo h i ems mul iplied by common law dummy p esen posi i e and
s a is ically signi ican esul s (.850, p < 0.01; 1.766, p < 0.01). hence he i s model shows ha he inan-
cial s a emen s o co po a ions ha hei sha es a e aded in common law coun ies a e mo e alue
ele an , compa ing wi h hose in ci il law coun ies. We u he examine he alue ele ance unde he
p ism o balance shee in o ma ion. Beginning wi h he ela i e app oach we include he a iables o
cOgen BUsiness & ManageMen 7
asse s and liabili ies. as i p esen ed in able 3 he chi2 alues o balance shee in o ma ion models a e
g ea e han he ea ning models, ac ha con i ms he weakness o ea nings models o cap u e he
o ali y o he alue ele ance as i was exp essed by F ancis and schippe (1999). he esul s show ha
asse s p esen posi i e and s ong s a is ically signi ican ela ion (0.246; p < 0.01), while liabili ies eco d
nega i e and s a is ically signi ican e ec (−0.258; p < 0.01) on i m’s sha e p ice. Finally, we adop he
inc emen al app oach by including he wo dummy a iables ha cap u es he legal o igins (model 8).
By adding hese a iables, asse s and liabili ies keep hei s a is ical signi icance. he mul iplica ion a i-
able o asse s indica es posi i e and s a is ically signi icance esul s (1.031; p < 0.01), while he mul iplica-
ion a iable o liabili ies p esen nega i e and s a is ically signi icance esul s (−0.961; p < 0.01). hence,
simila o he i s model, balance shee model indica es ha he alue ele ance o he inancial s a e-
men s o he co po a ions ha a e lis ed in common law coun ies is highe , compa ing wi h ci il law
coun ies.
Finally, he indings de i ed om Ols panel da a analysis, ocusing p ima ily on ixed e ec models
(models 1–4), exhibi consis ency wi h he esul s gene a ed by he gene alized Me hod o Momen s
(gMM) model. his con e gence unde sco es he obus ness and eliabili y o he indings, enhancing he
c edibili y o he esea ch conclusions. consequen ly, hese pa allel ou comes con ibu e signi ican ly o
a mo e comp ehensi e unde s anding o he phenomenon unde in es iga ion.
he indings con ibu e o he ongoing discussion on he impac o he legal amewo k on he
alue- ele ance o accoun ing in o ma ion. Kang (2003) has p e iously epo ed ha he legal egime
exhibi s a ma ginal e ec on he alue- ele ance o accoun ing in o ma ion, he eby sugges ing a po en-
ial associa ion be ween common law and highe accoun ing ele ance. hese esul s align wi h he cu -
en s udy’s indings, hus p o iding u he suppo o he no ion o common law’s po en ial in luence
on accoun ing ele ance. simila indings a e de ec ed om ali and hwang (2000) who conduc ed a
s udy e ealing ha inancial epo s possess lowe alue ele ance in coun ies cha ac e ized by
bank-o ien ed inancial sys ems compa ed o hose wi h ma ke -o ien ed sys ems. his inding adds o
he deba e by sugges ing ha he na u e o a coun y’s inancial sys em, pa icula ly i s o ien a ion
owa ds banks o ma ke s, can impac he alue ele ance o inancial epo s. Finally, ou esul s a e
di ec ly ela ed wi h he indings o Mechelli and cimini (2019) who p esen e idence ha a ia ions in
he quali y o legal sys ems ha e a posi i e in luence on he alue ele ance o ai alue es ima es.
Table 3. Reg ession esul s.
Va iable
Fixed e ec s Dynamic gMM model
12345678
Lag (Δ) 0.927***
(0.154)
0.892***
(0.148)
0.100***
(0.149)
0.095***
(0.149)
Cons an 19.251***
(0.50)
18.819***
(0.52)
19.095***
(0.50)
18.134***
(0.531)
26.81***
(0.601)
25.629***
(0.669)
26.368***
(0.597)
25.05***
(0.665)
eQPs 0.593***
(0.022)
0.582***
(0.021)
0.190***
(0.278)
0.178***
(0.279)
eaPs 0.544***
(0.042)
0.526***
(0.042)
0.225***
(0.035)
0.222***
(0.351)
eQPs*Dummy 0.240*
(0.171)
0.850***
(0.271)
eaPs*Dummy 2.23***
(0.532)
1.766***
(0.720)
aPs 0.644***
(0.216)
0.631***
(0.218)
0.246***
(0.273)
0.235***
(0.274)
LPs −0.645***
(0.215)
−0.632***
(0.219)
−0.258***
(0.027)
−0.247***
(0.275)
aPs*Dummy 0.580***
(0.149)
1.031***
(0.259)
LPs*Dummy −0.428***
(0.531)
−0.961***
(0.271)
R20.312 0.331 0.334 0.356
Wald Chi2 240.2 265.01 257.3 279.23
P ob Chi2 0.00 0.00 0.00 0.00
ins umen s 31 31 31 31
obse a ions 21195 21195 21195 21195 17854 17854 17856 17856
no es:.
1. Robus s anda d e o s in pa en hesis.
2. * Deno es ha he eg ession coe icien is signi ican a he *10% (0.1); ** a he 5% (0.05); *** a he 1% (0.01).
