Voluntary reporting incentives and reporting quality: Evidence from a reporting regime change for private firms in Taiwan

Wuchun Chi, Dan Dhaliwal, Oliver Zhen Li, Tzong Huei Lin

Research output: Contribution to journalArticle

10 Scopus citations

Abstract

This paper examines the effect of voluntary financial reporting on firms' reporting quality using a reporting regime change in Taiwan. Before 2001, Taiwan's Company Act imposed a mandatory public reporting requirement of filing audited financial statements on private firms with contributed capital exceeding a certain threshold. This requirement was rescinded in 2001 and private firms since have had discretion over public financial reporting. We divide private firms retroactively into two groups: voluntary reporting firms, those continuing the practice of filing financial statements after the regime change; and nonvoluntary reporting firms, those discontinuing the reporting practice after the regime change. We find that financial reporting quality is higher for voluntary reporting firms than for nonvoluntary reporting firms and that this quality difference translates into a lower cost of debt for voluntary reporting firms. Our results support the view that reporting incentives play an important role in determining reporting quality.

Original languageEnglish (US)
Pages (from-to)1462-1489
Number of pages28
JournalContemporary Accounting Research
Volume30
Issue number4
DOIs
StatePublished - Dec 1 2013

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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