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immature organization structure for the accounting profession, dating only from the wartime reforms (Standish, 1996).

This politicization of accounting standard-setting and enforcement weakens the demand for timely and conservative accounting income, while conversely increasing the demand for an income variable with low volatility (Ball et al., 2000). But since 1996, the French accounting system has undergone significant change, especially with the reform of the French National Accounting Council (CNC) and the foundation of a new Accounting Regulation Committee (CRC). The objective of the reform was to modernize the French accounting standards system to make it more effective, and also to speed up its responses to foreign GAAP, particularly US GAAP and IAS. The reform was a major redirection of the standardization process and challenged the existing balance of power between the various socio-economic actors directly concerned by the process. To a certain extent such redirection is reflected in the make-up of the standard-setting bodies. Further, following the reform the role of certain actors, starting with the state, was limited and the roles of others – especially the accounting profession and enterprises – was strengthened (Colasse and Standish, 1998).

In addition to such internal changes, the European Parliament has decided to require all listed EU companies to prepare their consolidated financial statements in accordance with International Accounting Standards (IAS) from 2005 onwards, at the latest (European Union, 2002). This decision is likely to have a deep impact on accounting practices in France, at least for listed companies, since the IAS are widely viewed as reflecting a largely common-law approach to transparent timely disclosure (Ball et al., 2000).

So, although France traditionally has a highly politicized accounting regulation system, recent developments indicate a move towards a model with lower political involvement. We believe this situation has had some impact on the improved degree of timeliness and conservatism in accounting earnings published by French listed firms.

Providers of capital and development of financial markets. Prevalent types of business organization and ownership differ across nations. Zysman (1983) identified three main types of financial system in developed countries: capital market systems (e.g. the UK or US), credit based governmental systems (e.g. France or Japan) and credit based financial institution systems (e.g. Germany). According to the existing literature (Hung, 2001; Hope, 2003), the degree of transparency in accounts in the first type of financial system is different from that in the last two. The demand for transparent accounting is higher in countries with more market-oriented institutions, because lenders, shareholders and other users rely to a greater degree on public disclosure to reduce information asymmetry. Conversely, the demand for accounting transparency is lower in countries with more politicized, planning-oriented institutions or with more extensive family or other networks, because information asymmetry is more likely to be reduced by insider access. In such countries, accounting income is designed more to meet other demands, including a reduction in political costs and the determination of income tax and dividend payments (Ball et al., 2003).

Ball and Shivakumar’s (2002) study on earnings quality in UK private firms provides another interesting viewpoint on how the quality of financial reporting is affected by the market demands. Their results suggest that in the UK – although private and public companies faced the same regulations on auditing, accounting standards and tax laws – private-company financial reporting nevertheless was lower in quality due to lower market demand.

Timeliness and conservatism

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