Accounting Standards Harmonization and Financial Statement Comparability: Evidence from Transnational Information Transfer

46 Pages Posted: 4 Feb 2011 Last revised: 29 Mar 2014

See all articles by Clare Wang

Clare Wang

University of Colorado at Boulder - Leeds School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: March 28, 2014

Abstract

This paper investigates whether accounting standards harmonization enhances the comparability of financial information across countries. I hypothesize that a firm yet to announce earnings reacts more strongly to the earnings announcement of a foreign firm when both report under the same rather than different accounting standards. My analysis of abnormal price reactions for a global sample of firms supports the prediction. Next, in an attempt to control for the underlying economic comparability and the effects of changes in reporting quality, I use a difference-in-differences design around the mandatory introduction of International Financial Reporting Standards (IFRS). I find that mandatory adopters experience a significant increase in market reactions to the release of earnings by voluntary adopters compared to the period preceding mandatory adoption. This increase is not observed for non-adopters. Taken together, the results show that accounting standards harmonization facilitates transnational information transfer and suggest financial statement comparability as a direct mechanism.

Keywords: Financial Statement Comparability, Information Transfer, IFRS, Accounting Standards Harmonization

Suggested Citation

Wang, Clare, Accounting Standards Harmonization and Financial Statement Comparability: Evidence from Transnational Information Transfer (March 28, 2014). Journal of Accounting Research, 2014, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1754199 or http://dx.doi.org/10.2139/ssrn.1754199

Clare Wang (Contact Author)

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

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