International GAAP Differences: The Impact on Foreign Analysts

40 Pages Posted: 4 Dec 2007

See all articles by Kee-Hong Bae

Kee-Hong Bae

York University - Schulich School of Business

Hongping Tan

McGill University

Michael Welker

Queen's University - Queen's School of Business

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Abstract

This paper investigates the relation between differences in accounting standards across countries and foreign analyst following and forecast accuracy. We develop two measures of differences in generally accepted accounting principles (GAAP) for 1,176 country-pairs. We then examine the impact of these measures of accounting differences on foreign analysts. In so doing, we utilize a unique database that identifies the location of financial analysts around the world, creating a sample that covers 6,888 foreign analysts making a total of 43,968 forecasts for 6,169 firms from 49 countries during 1998 - 2004. We find that the extent to which GAAP differs between two countries is negatively related to both foreign analyst following and forecast accuracy. Our results suggest that GAAP differences are associated with economic costs for financial analysts.

Keywords: GAAP differences, accounting standard, analyst following, forecast accuracy, harmonization

JEL Classification: M41, M44, M47, G29

Suggested Citation

Bae, Kee-Hong and Tan, Hongping and Welker, Michael, International GAAP Differences: The Impact on Foreign Analysts. Accounting Review, 2008. Available at SSRN: https://ssrn.com/abstract=1027342

Kee-Hong Bae

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext) 20248 (Phone)
416-736-5687 (Fax)

Hongping Tan

McGill University ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

Michael Welker (Contact Author)

Queen's University - Queen's School of Business ( email )

Kingston
Ontario, Ontario K7L 3N6
Canada

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