The Impact of Institutional Environment and Audit Quality on Earnings Quality: Evidence from France, Portugal and Spain

This master thesis examines the impact of institutional environment and audit quality on earnings quality in France, Portugal and Spain. These countries were selected because they all belong to the same French civil-law environment, which is characterized by ownership concentration, lower earnings quality, weak investor protection and legal enforcement. Institutional setting and audit quality will be examined by previous literature and by operative laws. Further on, Big 4 -audit share and institutional factors will be used as explanatory variables for earnings management measures for publicly listed companies in France, Portugal and Spain. This master thesis contributes previous research by examining interaction of institutional factors and audit quality as a proxy for earnings quality especially in French civil-law setting, since there is only little research on this area. The data is collected from Amadeus database and it consists of financial statements for publicly listed and active companies in France, Portugal and Spain. The financial statements consist of accounting years from 2004 until 2008. In total there are 678 companies examined. The results are drawn from four different earnings management measures, developed by Leuz, Nanda and Wysocki (2003). Measures focus on earnings smoothing and earnings discretion practices. Further on, regression analysis is drawn separately using earnings management measures as dependent variables and institutional factors and audit quality as independent variable. The results are not significant because of too few countries. However, empirical analysis suggests that France and Spain has better earnings quality than Portugal.fi=Opinnäytetyö kokotekstinä PDF-muodossa.|en=Thesis fulltext in PDF format.|sv=Lärdomsprov tillgängligt som fulltext i PDF-format