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The purpose of financial reporting is to enhance the usefulness of accounting information provided to investors and support their decision-making process. Thus, a lot of emphasis has been laid by standard-setting bodies, corporate associations and regulators to improve the Financial Reporting Quality (FRQ). Empirical evidence shows that FRQ improves investment efficiency, reduces cost of capital, thereby reducing information asymmetry by removing the gap between public and private information held by insiders (Brown and Hillegeist, 2007; and Beaver et al., 2015). The quality of financial reporting is influenced by a number of factors which may vary from firm-specific characteristics to country-specific characteristics. Firm-specific characteristics like corporate performance, audit quality, audit committee characteristics, board structure and management diversity influence FRQ significantly (Felo et al., 2003; Palmer, 2008; Labelle et al., 2010; Cohen et al., 2014; Martinez-Ferraro, 2014; and Abernathy et al., 2015). Apart from firm-specific factors, country-specific characteristics like accounting practices prevalent in a country, autonomy of standard-setting bodies, market-oriented system or bank-oriented system and legal and political environment also influence FRQ (Ali and Hwang, 2000). A large strand of accounting literature focused on accounting standards and their influence on financial reporting practice, but FRQ is largely influenced by the incentives of managers to report and these incentives are further governed by political and legal factors prevalent in a particular country (Ball et al., 2003). Accounting standards define the limit of financial reporting, whereas political and legal environment put pressure on companies to give financial reports a valid construct. This paper attempts to examine the impact of changes in legal statute on quality of financial reporting by examining the FRQ of Indian listed companies after Companies Act 2013 was enacted.
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