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IAS versus US GAAP: Information Asymmetry-Based Evidence from Germany's New Market

43 Pages Posted: 28 Jun 2001  

Christian Leuz

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Center for Financial Studies (CFS); University of Pennsylvania - Wharton Financial Institutions Center; CESifo Research Network

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Date Written: December 2002

Abstract

The competition between IAS and US GAAP to become the global accounting standard has created a debate about the relative quality of the two standards. This paper compares IAS and US GAAP in terms of information asymmetry and market liquidity - two key constructs in securities regulation. It uses firms trading in Germany's New Market, which must choose between IAS and US GAAP in preparing their financial statements, but face the same regulatory environment. That is, institutional factors, such as listing requirements, market microstructure and standards enforcement, are held constant in the comparison. The findings do not indicate that US GAAP is of higher quality as frequently claimed. Differences in the bid-ask spread and trading volume between IAS and US GAAP firms are economically and statistically insignificant. Subsequent analyses of the dispersion of analysts' forecasts, IPO underpricing and firms' standard choices corroborate these findings. Thus, at least for New Market firms, IAS and US GAAP appear to be comparable in their ability to reduce information asymmetries.

Key Words: International Accounting, Disclosure, Information Asymmetry, Market Liquidity

Notes: Previously Titled: IAS versus US GAAP: A (New) Market Based Comparison

JEL Classification: D82, M41, G30

Suggested Citation

Leuz, Christian, IAS versus US GAAP: Information Asymmetry-Based Evidence from Germany's New Market (December 2002). Available at SSRN: https://ssrn.com/abstract=275348 or http://dx.doi.org/10.2139/ssrn.275348

Christian Leuz (Contact Author)

University of Chicago - Booth School of Business ( email )

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HOME PAGE: http://faculty.chicagobooth.edu/christian.leuz/

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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HOME PAGE: http://www.nber.org

European Corporate Governance Institute (ECGI)

Brussels
Belgium

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

Center for Financial Studies (CFS) ( email )

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Germany

University of Pennsylvania - Wharton Financial Institutions Center

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Philadelphia, PA 19104-6218
United States

CESifo Research Network

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Munich, DE-81679
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