Are Foreign Earnings Disclosures Value-Relevant? Disaggregation Solves the Puzzle
32 Pages Posted: 26 Aug 2009
Date Written: August 1, 2009
This study examines whether foreign region- and country-specific performance disclosures relate differentially to shareholder wealth compared to domestic performance disclosures. Bearing in mind the fact that, in previous literature, empirical findings regarding the value-relevance of geographic performance disparities have been surprisingly conflicting and puzzling, we question in this paper prior sample selection procedures and data treatments. Using an extensive international company-level database, we distinguish between foreign ‘region-’ and ‘country-’specific performance disclosures and find that (1) the use of disaggregated foreign earnings information increases significantly the precision and significance of the value-relevance of foreign performance; (2) the disclosure of positive earnings movements generated in Latin American countries has a consistently negative value impact and (3) the value-relevance of foreign segment disclosures is particularly perceptible for Asian Pacific countries and the United Kingdom, confirming the attractiveness of these areas for foreign direct investment.
Keywords: firm valuation, accounting disclosures, foreign earnings, multinational firm, disaggregation
JEL Classification: F23, M41, G14
Suggested Citation: Suggested Citation