Relaxing the Reconciliation Requirement in Non-U.S. Firms' SEC Filings: Firm Incentives and Changes in Earnings Informativeness, and Earnings Attributes

Abstract

We investigate the changes in earnings information content and earnings attributes, for non-U.S. firms listed in U.S. equity markets, following the 2007 relaxation of the SEC requirement to reconcile IFRS earnings and stockholders’ equity to U.S. GAAP in annual regulatory filings. We analyze a sample of non-U.S. firms listed on U.S. exchanges that use IFRS, domestic GAAP, or U.S. GAAP from 2005 to 2008. Prior literature finds no changes in informativeness following the regulation for IFRS-using firms. However, when we partition the IFRS-using firms into two groups based on managers’ incentives to provide informative disclosures, we find that those firms with incentives to be more informative had significant increases in the information content of their earnings. Furthermore, we do not find any decrease in information content of earnings for firms without such incentives. We also document that this change in earnings informativeness was contemporaneous with a change in earnings attributes.