Home Bias, Foreign Mutual Fund Holdings, and the Voluntary Adoption of International Accounting Standards

40 Pages Posted: 11 Oct 2005  

Vicentiu Covrig

California State University, Northridge - Department of Finance, Financial Planning and Insurance

Mark L. DeFond

University of Southern California - Leventhal School of Accounting

Mingyi Hung

Hong Kong University of Science & Technology (HKUST)

Abstract

We test the assertion that a consequence of voluntarily adopting International Accounting Standards (IAS) is the enhanced ability to attract foreign capital. Using a unique database that reports firm-level holdings of over 25,000 mutual funds from around the world, our multivariate tests find that average foreign mutual fund ownership is significantly higher among IAS adopters. We also find that IAS adopters in poorer information environments and with lower visibility have higher levels of foreign investment, consistent with firms using IAS adoption to provide more information and/or information in a more familiar form to foreign investors. Taken together, our findings are consistent with voluntary IAS adoption reducing home bias among foreign investors and thereby improving capital allocation efficiency.

Keywords: International Accounting Standards, Home bias, Portfolio choice

JEL Classification: G11, G15, G23, M41, M44, M45, M47

Suggested Citation

Covrig, Vicentiu and DeFond, Mark L. and Hung, Mingyi, Home Bias, Foreign Mutual Fund Holdings, and the Voluntary Adoption of International Accounting Standards. Journal of Accounting Research, Forthcoming; EFA 2006 Zurich Meetings. Available at SSRN: https://ssrn.com/abstract=815286

Vicentiu Covrig

California State University, Northridge - Department of Finance, Financial Planning and Insurance ( email )

Northridge, CA 91330-8379
United States

Mark DeFond

University of Southern California - Leventhal School of Accounting ( email )

Accounting Building, Room 206
Los Angeles, CA 90089-0441
United States
213-740-5016 (Phone)
213-747-2815 (Fax)

Mingyi Hung (Contact Author)

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon
Hong Kong

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