Transformations  in
Business & Economics

THE COUNTRY RISK INFLUENCE ON ACCOUNTING QUALITY IN THE CASE OF ROMANIAN LISTED COMPANIES
Ioan Bogdan Robu, Mihai Carp, Cristian C. Popescu, Leontina Pavaloaia, Costel Istrate, Iuliana Eugenia Georgescu

ABSTRACT. Country risk plays an important role in business decisions and may influence investors' interest. The authors of this article try to find a connection between the country risk indicators, and the financial reporting numbers and financial market indicators. Investors need high quality accounting numbers to avoid bad decisions. Some companies tend to manipulate their financial reporting numbers by using earnings management or other techniques. The measurement and the interpretation of accounting quality metrics, together with the analysis of the country risk indicators can help investors in finding good business opportunities. In this context, the objective of this study is to measure and analyze the influence of the country risk - especially the rule of law component - on the quality of the accounting information reported by 64 Romanian listed companies, in the period of 2007-2015. Our results highlight a significant influence of the country risk on the quality of the financial reports of these companies, especially on the companies with significant foreign shareholders .

KEYWORDS:  country risk, accounting quality, regulatory quality, value relevance, faithful representation, accruals.

JEL classification:  C21, C58, E30, G14, M41.