For Better or Worse? Financial Reporting Harmonization and Transnational Information Transfers

50 Pages Posted: 8 Feb 2021 Last revised: 20 Mar 2021

See all articles by Manuel Herkenhoff

Manuel Herkenhoff

University of Münster

Martin Nienhaus

Goethe University Frankfurt

Date Written: January 6, 2021

Abstract

We find that global financial reporting harmonization is associated with investors overreacting to peer firms’ earnings announcements. Using a sample of 35,116 firm-pair-years from 51 countries between 2000 and 2010, we show that heightened information transfers due to financial reporting harmonization are followed by predictable price reversals when investors observe own-firm earnings. However, overreactions are not present for international firm-pairs that follow different accounting standards. Further, the same-standards overreactions are significantly stronger for firms with lower reporting incentives and weaker information environments. A difference-in-differences analysis of mandatory adoptions confirms our main results. Collectively, the findings reflect unintended consequences of harmonization.

Keywords: financial reporting harmonization, transnational information transfers, investor overreactions, predictable return patterns

JEL Classification: G15, G41, M40

Suggested Citation

Herkenhoff, Manuel and Nienhaus, Martin, For Better or Worse? Financial Reporting Harmonization and Transnational Information Transfers (January 6, 2021). Available at SSRN: https://ssrn.com/abstract=3761063 or http://dx.doi.org/10.2139/ssrn.3761063

Manuel Herkenhoff

University of Münster ( email )

Universitätsstr. 14-16
Münster, 48143
Germany

Martin Nienhaus (Contact Author)

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

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