Foreign Institutional Ownership and the Global Convergence of Financial Reporting Practices

55 Pages Posted: 7 Nov 2012 Last revised: 19 Aug 2016

See all articles by Vivian W. Fang

Vivian W. Fang

European Corporate Governance Institute (ECGI); Indiana University

Mark G. Maffett

University of Miami - Department of Accounting

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen

Multiple version iconThere are 2 versions of this paper

Date Written: February 10, 2015

Abstract

This paper investigates whether foreign institutional investors affect the global convergence of financial reporting practices. Using several measures of reporting convergence, we show that U.S. institutional ownership is positively associated with subsequent changes in emerging market firms’ accounting comparability to their U.S. industry peers. We identify this association using an instrumental variable approach that exploits exogenous variation in U.S. institutional investment generated by the JGTRRA Act of 2003. Further, we provide evidence of a specific mechanism — the switch to a Big Four audit firm — through which U.S. institutional investors affect reporting convergence. Finally, we show that, for emerging market firms, an increase in comparability to U.S. firms is associated with an improvement in the properties of foreign analysts' forecasts.

Keywords: Institutional Investors; Mutual Funds; Corporate Governance; U.S. GAAP; Financial Statement Comparability; Auditor Selection; Analyst Forecasts

JEL Classification: G32, G34, G38, M41, M47

Suggested Citation

Fang, Vivian W. and Maffett, Mark G. and Zhang, Bohui, Foreign Institutional Ownership and the Global Convergence of Financial Reporting Practices (February 10, 2015). Journal of Accounting Research 53, no. 3 (2015): 593-631., Available at SSRN: https://ssrn.com/abstract=2172429 or http://dx.doi.org/10.2139/ssrn.2172429

Vivian W. Fang

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Indiana University ( email )

Bloomington, IN 47405
United States
47405 (Fax)

Mark G. Maffett (Contact Author)

University of Miami - Department of Accounting ( email )

Coral Gables, FL 33146-6531
United States

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen ( email )

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