The impact of environmental factors on accounting development: an Egyptian longitudinal study

Using a 37-year Egyptian data set, which covers the period from 1961-1997, this study empirically investigates the directional and size effects of the environmental factors on the development of accounting. Additionally, the study tests the relationship between accounting and its business environment over time. The development of accounting is captured through factor analyzing several accounting dimensions. Four environmental factors are used to explain the variation observed over time in accounting development. These factors are (1) the economic environment, (2) the political environment, (3) the development of the stock market, and (4) privatization of state owned corporations. The overall results obtained from the time-series regression and other statistical tests indicate that there is a strong relationship between the environmental factors and accounting development in Egypt and that this relation varies with time. The empirical findings indicate that the level of the economy and the political environment are positively correlated to the accounting development in Egypt. Moreover, the results of the t-test, Z-test, and the Voung's non-nested test show that the effect of the environmental factors on accounting development differs over time reflecting the different stages of democracy and economic reform. This study should provide international investors and researchers with a better understanding of the environmental factors that affect accounting in emerging markets.