Are Wealthy Economies Expected to Have Better Accounting Quality? Hypothesis Development
Erekle Pirveli, PhD; Nikoloz Koiava, PhD; Daviti Petriashvili, MSc

Abstract
The purpose of this paper is to develop a pertinent hypothesis whether wealthy economies are likely to have better accounting quality compared to their poor counterparts. Prior literature has suggested that wealthy economies are expected to invest more in the establishment and development of the country-level financial reporting infrastructures such as financial, legal and political systems, which should ultimately lead to better accounting quality. This paper argues that while examining the relation between country wealth and accounting quality, it is important to distinguish between controlling-useful and valuation-useful accounting information. Namely, this paper expects wealthy economies to have more controlling-useful-, but not necessarily more valuation-useful accounting information. For wealthy economies, the authors expect the reporting environments where decision makers feel legally and politically secured, but where not a particularly strong demand on accounting information is stemmed from the capital markets as opposed to banks. While so, we further acknowledge that capital markets participants require more valuation-useful and the banking sector participants more controlling-useful accounting information. To our best knowledge, it is the first paper that argues that the link between country wealth and accounting quality should be positive regarding controlling-useful accounting information but is unclear regarding valuation-useful accounting information. The formulated hypothesis opens the way to future empirical research in the field.

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