Accounting disclosure quality, capital market intensity and national productivity

This paper reports results through the use of Data Envelopment Analysis (DEA) to examine the effect of accounting disclosure quality on national productivity in two stages. In stage I, we adopt the framework of Kumar and Russell’s tripartite decomposition of productivity growth to estimate national productivity growth and its three underlying components, namely efficiency change, technical progress, and physical capital accumulation. In stage II, we regress national productivity growth and its three components against the interaction of accounting disclose quality and capital market intensity. In our empirical analysis we use data from 33 countries over the period 1985–2002. The results indicate that (1) the accumulation of physical capital is the primary driver of national productivity growth, and (2) the accounting disclosure quality affects national productivity through its effect on physical capital accumulation in countries with high capital market intensity. Overall, our results indicate that for those nations whose GDP relies heavily on capital markets, higher accounting disclosure quality stimulates higher level of physical capital, which, in turn, leads to higher national productivity.