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The differences in the resulting timeliness of earnings result, in turn, from differences in production functions and investment opportunities of these firms (Fekrat and Belkaoui, 2002). Accordingly, we expect to find that over this period, accounting disclosures by French listed companies increasingly incorporate the accounting income properties that are considered desirable in common law countries. According to Ball et al. (2000), such properties are determined primarily in the disclosure market and include timeliness in incorporating negative economic income.

The general hypothesis for our study is therefore:

H1. The accounting earnings disclosed by French listed firms became increasingly timely and conservative over the period studied.

In our paper, we not only analyze the general trend in the timeliness and conservatism of accounting income, but also examine whether certain variables affect these trends. The variables selected are size of the firm, presence of foreign stockholders, and nature of auditing firms.

Large versus small firms. Our first variable is the size of the firm. The impact of corporate size on the conservatism of accounting earnings is not clear. Studies carried out on US samples (Basu et al., 2001a, b; Ryan and Zarowin, 2001) show that large firms are often less conservative than small ones. There are several possible explanations. First, this apparent size anomaly is a natural consequence of market efficiency, since small firms are more risky in terms of the market value of equity. Second, small firms tend to be less diversified than large ones. Their returns are more volatile, making them more likely to have material economic impairments and therefore exposing their auditors and managers to greater legal liability risk. This could translate into more or bigger writedowns being required for small firms as auditors and/or managers try to reduce their legal liability exposure, which could explain the greater asymmetry for small firms.

Most probably, these arguments are valid only for countries with a capital market based financial system, and less valid for code law countries like France, where shareholder class-action lawsuits are uncommon (Basu, 2001). Changes discussed in the French institutional context essentially concern large firms. Generally speaking, large firms have more public visibility and are supposed to be subject to more pressures from different economic actors. Furthermore, large French firms often take their foreign counterparts as models and imitate their managerial and accounting practices. Most such role model companies are global players of Anglo-American origin. We formulate the next two hypotheses as follows:

H2. The accounting earnings disclosed by large listed companies are more timely and conservative than those published by small ones.

H3. The trend towards more timeliness and conservatism in accounting earnings is clearer in large listed companies than small ones.

Internationally financed versus domestically financed firms. The development of international financing activity is often seen in the literature as a primary possible explanation for the improvement in accounting timeliness and conservatism. Basu (2001) points out that European firms are reporting more conservatively in order to improve their ability to raise capital in global debt and equity markets. Other researchers also propose that firms issuing (or preparing to issue) debt or equity in foreign markets are more likely to report conservatively relative to other domestic

Timeliness and conservatism

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