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1、IncentivesandQualityWuchunChiNationalChengchiUniversityDanDhaliwalUniversityofArizonaOliverZhenLiUniversityofArizonaTzong-HueiLinNationalKaohsiungUniversityofAppliedSciencesOctober,2010AbstractWeexaminetheeffectoffinancialreportingincentivesonfirms’reportingqualityusinganatur
2、alexperimentinTaiwan.Before2001,Taiwan’sCompanyActimposedamandatoryreportingrequirementonprivatefirmswithcapitalexceedingacertainthreshold.Thisrequirementwasrescindedin2001andprivatefirmssincehavehaddiscretionsoverfinancialreporting.Takingadvantageofthisregimechange,wedividep
3、rivatefirmsretroactivelyintotwogroups:voluntaryreportingfirms,thosecontinuingthereportingpracticeaftertheregimechange;andnon-voluntaryreportingfirms,thoseceasingthereportingpracticeaftertheregimechange.Wefindthatfinancialreportingqualityishigherforvoluntaryreportingfirmsthanf
4、ornon-voluntaryreportingfirmsandthatthisqualitydifferencetranslatesintoalowercostofdebtforvoluntaryreportingfirmsandisreflectedinthesefirms’auditorchoices.Ourresultssupporttheviewthatreportingincentivesplayanimportantroleindeterminingreportingquality.Keywords:AccountingStanda
5、rds,FinancialReportingIncentives,FinancialReportingQuality,LossAvoidance,IncomeSmoothness,EarningsConservatismJELCode:M41___________________WearegratefultoseminarparticipantsattheCityUniversityofHongKong,NankaiUniversity,NationalChengchiUniversityandPekingUniversityforcomment
6、sandsuggestions.0IncentivesandQuality1.IntroductionRecentyearshavewitnessedacontinuingdebateaboutwhethersuperiorfinancialreportingstandards,suchastheInternationalAccountingStandards(IAS)ortheInternationalFinancialReportingStandards(IFRS),improvefinancialreportingquality.Barth
7、,LandsmanandLang(2008)showthatfirmsvoluntarilyadoptingtheIASevidencelessearningsmanagement,moretimelylossrecognition,andmorevaluerelevanceofaccountingnumbers.Therefore,theirresultssuggestthatadoptingasetofsuperioraccountingstandardsimprovesfinancialreportingquality.Ontheother
8、hand,Ball,RobinandWu(2003)arguethatitisfirms’reportingincentivesandn
