Mandatory IFRS Adoption and the U.S. Home Bias

Posted: 25 Oct 2011 Last revised: 11 Sep 2013

See all articles by Inder K. Khurana

Inder K. Khurana

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business

Paul N. Michas

University of Arizona - Eller College of Management

Multiple version iconThere are 2 versions of this paper

Date Written: November 7, 2011

Abstract

This paper examines whether mandatory IFRS adoption at the country level lowers U.S. investors’ propensity to overweight domestic stocks in their common stock portfolios (generally referred to as home bias). We find that, on average, U.S. home bias decreases for countries that mandate IFRS adoption, after controlling for country-fixed effects. We also find that the reduction in the U.S. home bias after the mandatory adoption of IFRS is greater for countries with larger differences between IFRS and their domestic accounting standards, for countries with a stricter rule of law and a common law legal origin, and in countries with greater incentives to report high-quality financial information. Overall, our results indicate that a common set of global accounting standards matter for portfolio holdings of U.S. investors and that U.S investors regard the enforcement of standards to be a key factor in making investments outside the U.S.

Keywords: International Accounting, International Financial Reporting Standards, Home Bias, U.S. Investments

JEL Classification: M41

Suggested Citation

Khurana, Inder and Michas, Paul N., Mandatory IFRS Adoption and the U.S. Home Bias (November 7, 2011). Accounting Horizons (2011) Vol. 25 (4): 729-753. Available at SSRN: https://ssrn.com/abstract=1948699

Inder Khurana

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business ( email )

331 Cornell Hall
Columbia, MO 65211
United States
573-882-3474 (Phone)
573-882-2437 (Fax)

Paul N. Michas (Contact Author)

University of Arizona - Eller College of Management ( email )

Tucson, AZ 85721
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
495
PlumX Metrics