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

56 Pages Posted: 13 Oct 2023

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

NHH - Norwegian School of Economics

Date Written: September 19, 2023

Abstract

We examine whether and how more comparable financial information affects equity investors identification of and investments in private firms. Exploiting a large-sample quasi-experimental setting, we document that firms affected by a major accounting reform experienced a greater increase of 2-6% in foreign ownership than firms that were not affected after the reform compared to before. Cross-sectional results confirm that the effect is stronger for smaller, highly profitable, intangible-intensive, and more stable firms. Additional analyses suggest that shareholders with private information channels benefit less from the increased comparability in public information, while those with greater familiarity with the new standards benefit more. The findings are robust to different forms of matching procedures and a placebo-test. Our large sample evidence based on the historical shareholder information of private firms provides insights on the economic 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, economic 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 (September 19, 2023). Available at SSRN: https://ssrn.com/abstract=4575873 or http://dx.doi.org/10.2139/ssrn.4575873

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

NHH - Norwegian School of Economics ( email )

Helleveien 30
Bergen, NO-5045
Norway

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