Accounting Standards, Information Flow, and Firm Investment Behavior

54 Pages Posted: 29 Dec 2000 Last revised: 1 Oct 2009

See all articles by Jason G. Cummins

Jason G. Cummins

Brevan Howard Asset Management LLP

Trevor S. Harris

Columbia University - Columbia Business School

Kevin A. Hassett

American Enterprise Institute (AEI)

Date Written: March 1994

Abstract

We present a description of two different accounting regimes that govern reporting practice in most developed countries. 'One-book' countries, e.g. Germany, use their tax books as the basis for financial reporting and 'two-book' countries, e.g. the United States, keep the books largely separate. We derive a structural model and formalize a testable implication of our discussion: firms in one-book countries may be reluctant to claim some tax benefits if reductions in taxable income may be misinterpreted by financial market participants as signals of lower profitability. Econometric estimates suggest that accounting regime differences play an important role in describing domestic investment patterns both within and across countries.

Suggested Citation

Cummins, Jason Gustav and Harris, Trevor S. and Hassett, Kevin A., Accounting Standards, Information Flow, and Firm Investment Behavior (March 1994). NBER Working Paper No. w4685. Available at SSRN: https://ssrn.com/abstract=254556

Jason Gustav Cummins (Contact Author)

Brevan Howard Asset Management LLP ( email )

London, SW1Y 6XA
United Kingdom

Trevor S. Harris

Columbia University - Columbia Business School ( email )

3022 Broadway
608 Uris Hall
New York, NY 10027
United States
212-851-1802 (Phone)
212-316-9219 (Fax)

Kevin A. Hassett

American Enterprise Institute (AEI) ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States
202.862.7157 (Phone)
202.862.7177 (Fax)

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