But even in these countries, the legal system leaves managers and controlling
owners with considerable discretion to manage reported earnings in order to mask true firm
performance and to conceal their private control benefits from outsiders. In most of the rest
of the world, the extent of investor-protection is less and the judicial system works less well
as courts consider only the clearest violations of investor rights. As a result, legal protection
alone becomes insufficient and accounting information such as earnings cannot reflect
“true” economic performance.