Discussion Discussion of “Financial reporting quality in international settings: A comparative study of the U.S.A, Japan, Thailand, France and Germany” Paquita Y. Davis-Friday Baruch College, City University of New York, United States 1. Introduction This paper examines the relation among discretionary accruals, ownership structure and sources of financing in the U.S., Japan, Thailand, France, and Germany. Specifically, Rahman, Yammeesri, and Perera compare the implications of agency theory (e.g., debt contracting) with institutional theory (e.g., rule of law and ownership structure) to determine which better explains variations in accounting quality across countries. They contend that agency theory, which relies on the separation of ownership and control, does not necessarily apply in countries outside the U.S. where ownership and capital structures vary. The authors find that the relation between financing sources and earnings quality varies somewhat predictably across countries based on ownership structure. Overall, they conclude that the levels of abnormal accruals (earnings quality) vary depending on differences in financing, corporate, and regulatory arrangements across countries. The purpose of their paper is to refine previous research that assesses the relation between countries' legal origins and the nature of their capital markets. The results from the paper confirm the conjecture that country-specific institutions are more significant explanators of cross-country variations in earnings quality than simple common and code law and debt versus equity dichotomies (Ball, Robin, & Wu, 2003). Further, using the U.S. as the benchmark depicting Agency Theory, the results indicate that variances from the predictions of the traditional theory can be made according to country-specific institutional factors. Ultimately Available online at www.sciencedirect.com The International Journal of Accounting 45 (2010) 35 – 38 DOI of original article: 10.1016/j.intacc.2010.01.001. E-mail address: Paquita.Davis-Friday@baruch.cuny.edu. 0020-7063/$ - see front matter © 2009 University of Illinois. All rights reserved. doi:10.1016/j.intacc.2010.01.002