Financial Disclosure and International Capital Mobility in Latin America
15 Pages Posted: 17 Apr 2006
Date Written: April 6, 2006
Previous studies have shown that financial accounting information produce economic effects, as a result of its role in reducing information asymmetry in capital markets. Recent theories sustain that the level of value-relevance of a country's accounting information is directly related to international capital mobility. This would entail that countries with higher disclosure of value-relevant accounting information and where financial accounting is less aligned with tax accounting would show higher potential for attracting international capital flows. The extant literature provides evidence on the impact of financial disclosure environments on international capital mobility. However, to our knowledge, there are no such studies including Latin-American countries. We aimed at filling this void by assessing the influence of accounting information on international capital mobility in a twenty two-country sample, including the three largest Latin-American countries: Argentina, Brazil, and Mexico. The countries included in the sample represent around 80% of the world's GDP from 1995 to 2001. Our empirical results show with a 99% confidence level that the degree of disclosure of value-relevant accounting information has positively influenced international capital mobility. We also show with a 95% confidence level that countries where financial accounting is less aligned with tax accounting present higher international capital mobility. The three Latin-American countries studied present relatively low levels of disclosure among the sampled countries. However, whereas Argentina and Brazil show low levels of capital mobility, Mexico stands out with a high capital mobility, which we reckon it could be explained by the country's trade and investment connections with the US and by its participation in the NAFTA.
Keywords: international capital mobility, financial accounting disclosure, international CAPM, Consumption, direct foreign investment
JEL Classification: F21, G12, G15, N26, M41, M45, M47
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