Accounting Standards and Value Relevance of Financial Statements: An International Analysis
The Hong Kong University of Science and Technology & University of Southern California
Journal of Accounting & Economics, Vol. 30, No. 3, December 2000
Using 17,743 firm-year observations of industrial companies in 21 countries from 1991 to 1997, this paper finds that the use of accrual accounting (versus cash accounting) negatively affects the value relevance of financial statements in countries with weak shareholder protection. This negative effect, however, does not exist in countries with strong shareholder protection. These findings are consistent with the belief that shareholder protection improves the effectiveness of accrual accounting, and suggest the importance of considering shareholder protection when formulating accounting policies related to accruals.
Keywords: International financial reporting; Accounting standards; Accrual accounting
JEL Classification: G15, M41, M47
Date posted: March 22, 2001
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