IAS versus US GAAP: Information Asymmetry-Based Evidence from Germany's New Market
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
Journal of Accounting Research, June 2003
Motivated by the debate about globally uniform accounting standards, this paper investigates whether firms using US GAAP vis-a-vis IAS exhibit differences in several proxies for information asymmetry. The study exploits a unique setting where the two sets of standards are put on a level playing field. Firms trading in Germany's New Market must choose between IAS and US GAAP for financial reporting, but face the same regulatory environment otherwise. Thus, institutional factors such as listing requirements, market microstructure and standards enforcement are held constant. In this setting, differences in the bid-ask spread and share turnover between IAS and US GAAP firms are statistically insignificant and economically small. Subsequent analyses of analysts' forecast dispersion, IPO underpricing and firms' standard choices corroborate these findings. Thus, at least for New Market firms, the choice between IAS and US GAAP appears to be of little consequence for information asymmetry and market liquidity. These findings do not support widespread claims that US GAAP produce financial statements of higher informational quality than IAS.
Keywords: International accounting, Disclosure, Cost of capital, Accounting standards, Harmonization
JEL Classification: D82, G12, M41, M44, M45, M47, G30
Date posted: January 21, 2003