Abstract

http://ssrn.com/abstract=2172429
 
 

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Foreign Institutional Ownership and the Global Convergence of Financial Reporting Practices


Vivian W. Fang


University of Minnesota - Twin Cities - Department of Accounting

Mark G. Maffett


University of Chicago - Booth School of Business

Bohui Zhang


University of New South Wales (UNSW) - School of Banking and Finance; Financial Research Network (FIRN)

September 8, 2014


Abstract:     
This paper investigates whether foreign institutional investors directly affect the global convergence of financial reporting practices. Using several measures of reporting convergence, we show that U.S. institutional ownership is positively associated with subsequent changes in emerging market firms’ accounting comparability with their U.S. industry peers. We identify this association using an instrumental variable approach that exploits exogenous variation in U.S. institutional investment generated by the JGTRRA act of 2003. Further, we provide evidence of one specific mechanism – the switch to a big four audit firm – through which U.S. institutional investors affect reporting convergence. Finally, we highlight an economic benefit of global reporting convergence by showing that an increase in emerging market firms’ comparability with their U.S. industry peers is associated with an improvement in the properties of foreign analysts’ forecasts.

Number of Pages in PDF File: 53

Keywords: Institutional Investors; Mutual Funds; Corporate Governance; U.S. GAAP; Financial Statement Comparability; Auditor Selection; Analyst Forecasts

JEL Classification: G32, G34, G38, M41, M47

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Date posted: November 7, 2012 ; Last revised: September 9, 2014

Suggested Citation

Fang, Vivian W. and Maffett, Mark G. and Zhang, Bohui, Foreign Institutional Ownership and the Global Convergence of Financial Reporting Practices (September 8, 2014). Available at SSRN: http://ssrn.com/abstract=2172429 or http://dx.doi.org/10.2139/ssrn.2172429

Contact Information

Vivian W. Fang
University of Minnesota - Twin Cities - Department of Accounting ( email )
321 19th Avenue South
Room 3-109
Minneapolis, MN 55455
United States
Mark G. Maffett (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Chicago Booth School of Business Logo

Bohui Zhang
University of New South Wales (UNSW) - School of Banking and Finance ( email )
Australian School of Business
Sydney NSW, 2052
Australia
61293855834 (Phone)
61293856347 (Fax)
HOME PAGE: http://www.banking.unsw.edu.au/nps/servlet/portalservice?GI_ID=System.LoggedOutInheritableArea&maxWn

Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

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