Foreign Institutional Ownership and the Global Convergence of Financial Reporting Practices

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

Vivian W. Fang

University of Minnesota - Twin Cities - Department of Accounting

Mark G. Maffett

University of Chicago - Booth School of Business

Bohui Zhang

University of New South Wales (UNSW) - School of Banking and Finance; Financial Research Network (FIRN)

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

University of Minnesota - Twin Cities - Department of Accounting ( email )

321 19th Avenue South
Room 3-109
Minneapolis, MN 55455
United States

HOME PAGE: http://www.vivianfang.org

Mark G. Maffett (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Bohui Zhang

University of New South Wales (UNSW) - School of Banking and Finance ( email )

Australian School of Business
Sydney NSW, 2052
Australia
61293855834 (Phone)
61293856347 (Fax)

HOME PAGE: http://www.banking.unsw.edu.au/nps/servlet/portalservice?GI_ID=System.LoggedOutInheritableArea&maxWn

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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