Financial Reporting Differences Around the World: What Matters?

The international financial reporting literature identifies a multitude of country attributes that each appear to explain financial reporting differences around the world. We first show that a single underlying factor explains across-country variation in 6 reporting quality measures used in the international literature. We then examine 72 country attributes and show that they are highly correlated and that 4 underlying factors explain most of the variation in these attributes across countries. Furthermore, individual country attributes provide essentially no incremental explanatory power for international reporting diversity over these 4 factors, which collectively explain over 70% of the variation in reporting differences. Our findings highlight the very high causal density of country attributes and thus the difficulty in attributing international reporting diversity to specific institutions and policies. We conclude with a discussion of possible future directions for research on financial reporting around the world.