Cross-Border Investments in Private Firms: The Benefits of Comparability for Foreign Investors

50 Pages Posted: 6 May 2022

See all articles by Kristian D. Allee

Kristian D. Allee

University of Arkansas - Department of Accounting

Tami Dinh

University of St. Gallen, Institute of Accounting, Control, Auditing

Arthur Stenzel

University of St. Gallen

Date Written: April 30, 2022

Abstract

In this paper, we examine the benefits of accounting comparability for cross-border investments in private firms. Exploiting a quasi-experimental setting we examine the real effect of an increase in accounting comparability using a difference-in-differences research design. We find that the increase in accounting comparability after a major accounting reform leads to an average increase in foreign ownership of about 2 to 6 percentage points. Cross-sectional and industry results confirm that the effect is stronger for smaller, highly profitable, intangible-intensive, and more stable firms that are in the consumer durables and manufacturing industries. The findings are robust to different forms of matching procedures, variations in the measurement windows, and a placebo-test. Our large sample evidence based on the historical shareholder information of private firms provides insights on the real effects of increasing the comparability of local GAAP for foreign-direct investments in private firms. Additionally, our findings are relevant to standard setters as more countries continue their convergence towards and endorsement of International Financial Reporting Standards and update and improve their local GAAP.

Keywords: accounting comparability, private firms, real effects, cross-border investment

JEL Classification: G14, M40, M41, M48

Suggested Citation

Allee, Kristian D. and Dinh, Tami and Stenzel, Arthur, Cross-Border Investments in Private Firms: The Benefits of Comparability for Foreign Investors (April 30, 2022). Available at SSRN: https://ssrn.com/abstract=4098783 or http://dx.doi.org/10.2139/ssrn.4098783

Kristian D. Allee (Contact Author)

University of Arkansas - Department of Accounting ( email )

University of Arkansas
Business Building 458
Fayetteville, AR 72701
United States
479-575-5227 (Phone)

Tami Dinh

University of St. Gallen, Institute of Accounting, Control, Auditing ( email )

St. Gallen, 9000
Switzerland

HOME PAGE: http://www.aca.unisg.ch/en

Arthur Stenzel

University of St. Gallen ( email )

Tigerbergstrasse 9
Saint Gallen, St. Gallen CH-9000
Switzerland

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