The Role of International Accounting Standards in Transitional Economies: A Study of the People's Republic of China

46 Pages Posted: 28 Aug 2000

See all articles by Elizabeth A. Eccher

Elizabeth A. Eccher

Massachusetts Institute of Technology

Paul M. Healy

Harvard Business School; National Bureau of Economic Research (NBER)

Date Written: June 2000

Abstract

This paper examines the usefulness of International Accounting Standards (IAS) in a transitional economy, the People's Republic of China (PRC). Using a sample of firms that provide financial reports under both IAS and more rigid local PRC standards, we conclude that information produced using IAS is no more useful than that prepared using Chinese standards. First, there is no difference in the explanatory power of IAS and PRC accruals for future cash flows. Second, for stocks that can only be owned by international investors, IAS and PRC earnings and accruals have a similar association with annual stock returns. Finally, for stocks that can be owned only by domestic investors, PRC earnings have a higher relation with annual stock returns than IAS earnings. We argue that one explanation for the failure of IAS data to dominate PRC data is the absence of effective controls and infrastructure in China to monitor the additional reporting judgment available to managers under IAS.

JEL Classification: G12, M41, M44, M47

Suggested Citation

Eccher, Elizabeth Angela and Healy, Paul M., The Role of International Accounting Standards in Transitional Economies: A Study of the People's Republic of China (June 2000). Available at SSRN: https://ssrn.com/abstract=233598 or http://dx.doi.org/10.2139/ssrn.233598

Elizabeth Angela Eccher (Contact Author)

Massachusetts Institute of Technology ( email )

E52-325G
Cambridge, MA 02142
United States
617-253-6623 (Phone)
617-253-0603 (Fax)

Paul M. Healy

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States
617-495-1283 (Phone)
617-496-7387 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
4,289
Abstract Views
15,603
rank
2,240
PlumX Metrics