The Value Relevance of Foreign Income: An Australian, Canadian, and British Comparison

23 Pages Posted: 12 Oct 2003

See all articles by Gordon M. Bodnar

Gordon M. Bodnar

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS)

Lee-Seok Hwang

Seoul National University - College of Business Administration

Joseph Weintrop

City University of New York - Baruch College - Stan Ross Department of Accountancy

Abstract

In this paper we examine the value relevance of geographical earnings disclosures for firms listed and domiciled in Australia, Canada and the United Kingdom. We find that foreign earnings in all three countries are valued differently than domestic earnings. The estimate of the association coefficient for foreign earnings changes with returns is positive in all three countries and statistically larger than the association coefficient for domestic earnings changes in Canada and the United Kingdom. Further tests show that this difference is related to relative growth opportunities of overseas operations to domestic operations. These findings are similar to results for foreign earnings association coefficients for American-based multinationals found in Bodnar and Weintrop (1997). These results indicate that across countries the market perceives the results of foreign operations as value relevant and suggests that greater emphasis should be placed on the required disclosure of segmental data rather than on the concern that all countries prepare the segmental information using a common GAAP.

JEL Classification: G12, M41, M45, M47

Suggested Citation

Bodnar, Gordon M. and Hwang, Lee-Seok and Weintrop, Joseph, The Value Relevance of Foreign Income: An Australian, Canadian, and British Comparison. Journal of International Financial Management & Accounting, Vol. 14, pp. 171-193, October 2003. Available at SSRN: https://ssrn.com/abstract=450958

Gordon M. Bodnar (Contact Author)

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS) ( email )

1740 Massachusetts Avenue, NW
Washington, DC 20036
United States
202-663-7731 (Phone)
202-663-7718 (Fax)

Lee-Seok Hwang

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

Joseph Weintrop

City University of New York - Baruch College - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States
212-802-6443 (Phone)
212-802-6423 (Fax)

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