Accounting Standards Harmonization and Financial Statement Comparability: Evidence from Transnational Information Transfer
Northwestern University - Kellogg School of Management
March 28, 2014
Journal of Accounting Research, 2014, Forthcoming
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.
Number of Pages in PDF File: 46
Keywords: Financial Statement Comparability, Information Transfer, IFRS, Accounting Standards Harmonization
Date posted: February 4, 2011 ; Last revised: March 29, 2014