Mandatory IFRS Adoption and the U.S. Home Bias

2011 ◽  
Vol 25 (4) ◽  
pp. 729-753 ◽  
Author(s):  
Inder K. Khurana ◽  
Paul N. Michas
Keyword(s):  
Fixed Effects ◽  
Home Bias ◽  
Accounting Standards ◽  
Data Availability ◽  
Portfolio Holdings ◽  
Ifrs Adoption ◽  
Stock Portfolios ◽  
Country Level ◽  
Key Factor ◽  
The U.S

SYNOPSIS This paper examines whether mandatory IFRS adoption at the country level lowers U.S. investors' propensity to overweight domestic stocks in their common stock portfolios (generally referred to as home bias). We find that, on average, U.S. home bias decreases for countries that mandate IFRS adoption, after controlling for country-fixed effects. We also find that the reduction in the U.S. home bias after the mandatory adoption of IFRS is greater for countries with larger differences between IFRS and their domestic accounting standards, for countries with a stricter rule of law and a common law legal origin, and in countries with greater incentives to report high-quality financial information. Overall, our results indicate that a common set of global accounting standards matters for portfolio holdings of U.S. investors and that U.S. investors regard the enforcement of standards to be a key factor in making investments outside the U.S. Data Availability: Data are publicly available.

Firm Equity Investment Decisions and U.S. GAAP and IFRS Consolidation Control Guidelines: An Empirical Analysis

2017 ◽  
Vol 16 (1) ◽  
pp. 37-57 ◽  
Author(s):  
Allison K. Beck ◽  
Bruce K. Behn ◽  
Andrea Lionzo ◽  
Francesca Rossignoli
Keyword(s):  
Accounting Standards ◽  
Data Availability ◽  
Marginal Effect ◽  
Investment Behavior ◽  
Strategic Investment ◽  
Equity Investment ◽  
Bright Line ◽  
Accounting Scandals ◽  
Control Concept ◽  
The U.S

ABSTRACT It is asserted in the literature that rules-based accounting standards leave room for transaction structuring and that numerous accounting scandals have been linked to companies structuring transactions to avoid bright-line rules. Prior research suggests that bright-line accounting standards motivated companies to avoid the equity method or consolidation accounting by keeping their equity ownership percentages below the key thresholds of 20 percent and 50 percent. However, in recent years, much has changed regarding U.S. GAAP and IFRS principles, especially in terms of the guidelines surrounding business combinations and the concept of control. Now, given the similarity of the U.S. GAAP and IFRS equity investment accounting standards and their more recent emphasis on the control concept, one would not expect either U.S. GAAP or IFRS firms to engage in transaction-structuring behavior, holding concentrated ownership percentages at, or right below, 50 percent. Our study extends prior research by investigating whether this phenomenon (of investment percentages being concentrated right at 50 percent or just below) exists in today's FASB and IASB reporting environments and if so, why? Using ownership data from 2004–2008, we investigate whether firms engage in strategic investment behavior in the vicinity of the 50 percent ownership threshold within the U.S. GAAP and IFRS reporting environments. Interestingly, our univariate results indicate that despite a shift in the accounting standards to a more principles-based definition of control, U.S. GAAP-compliant and IFRS-compliant companies continue to behave in a manner indicative of purposeful transaction structuring around the 50 percent threshold, as evidenced by an unusually heavy concentration of investment at or below 50 percent. This finding could mean that U.S. GAAP- and IFRS-compliant companies (and their auditors) are continuing to anchor to the old bright-line guidance regarding consolidation accounting. We supplement our univariate tests with a regression analysis to examine potential incentives that could explain this investment behavior. We find that leverage has a significant positive marginal effect—increased leverage is associated with a greater likelihood of choosing to keep the investment level at or below 50 percent. Data Availability: The ownership data for this study were obtained from the Bureau van Dijk OSIRIS Ownership database. Data will be made available in accordance with the American Accounting Association's data integrity policy.

Mandatory IFRS Adoption and the U.S. Home Bias

2011 ◽  
Author(s):  
Inder K. Khurana ◽  
Paul N. Michas
Keyword(s):  
Home Bias ◽  
Ifrs Adoption ◽  
The U.S

Investor Perceptions of Potential IFRS Adoption in the United States

2012 ◽  
Vol 88 (2) ◽  
pp. 577-609 ◽  
Author(s):  
Philip P. M. Joos ◽  
Edith Leung
Keyword(s):  
United States ◽  
Stock Market ◽  
Market Reaction ◽  
The United States ◽  
Data Availability ◽  
Current Debate ◽  
Litigation Risk ◽  
Ifrs Adoption ◽  
Stock Market Reaction ◽  
The U.S

ABSTRACT This paper examines the stock market reaction to 15 events relating to IFRS adoption in the United States. The goal is to assess whether investors perceive the switch to IFRS as beneficial or costly. Our findings suggest that investors' reaction to IFRS adoption is more positive in cases where IFRS is expected to lead to convergence benefits. Our results also indicate a less positive market reaction for firms with higher litigation risk, which is consistent with investors' concerns about greater discretion and less implementation guidance under IFRS for these firms. Overall, the findings are relevant to the current debate on IFRS adoption in the U.S. and highlight the importance of convergence to investors. Data Availability:  All data are publicly available from the sources indicated in the paper (see Appendices A and B).

scholarly journals Institutional Differences of Information Content On Voluntary Earnings Releases In The U.S. and Canada

1970 ◽  
Vol 32 (1) ◽  
pp. 41-54
Author(s):  
Ronald Stunda
Keyword(s):  
Financial Reporting ◽  
Accounting Standards ◽  
Earnings Forecasts ◽  
Financial Accounting ◽  
Ifrs Adoption ◽  
Earnings Releases ◽  
Institutional Differences ◽  
Regulation Fd ◽  
To Come ◽  
The U.S

Historically, Canadian laws have created a less litigious environment thanthose of the U.S. This changed in 1998 with the passage of the Securities LitigationUniform Standards Act (SLUSA), and in 2000 with the passage of Regulation FullDisclosure (Regulation FD). The intent of these acts were to not only encouragemore U.S. firms to release voluntary earnings forecasts, but to offer protection forsuch disclosures against lawsuits, similar to laws in Canada. In addition, with theadvent of International Financial Accounting Standards (IFRS), voluntary earningsreleases play a bigger role, in increased frequency and revision of forecasts. SinceCanada requires the use of IFRS in financial reporting, it serves as a good base ofcomparison of what may be to come in the U.S. These types of differences comprisewhat can be characterized as institutional differences.This study finds that Canadian managers tend to issue voluntary earningsforecasts more frequently across the board than their U.S. counterpart, even afterthe interdiction of SLUSA and Regulation FD in the U.S. In addition, the Canadianforecasts tend to be more precise than those offered by U.S. managers. On the surface,it appears that the SLUSA and Regulation FD have not completely achievedtheir goal of creating greater and more informative voluntary earnings disclosuresin the U.S., but in addition, IFRS adoption in Canada may have also led to the increasedfrequency and accuracy of earnings forecasts.

scholarly journals Accounting Standards and International Portfolio Holdings

2014 ◽  
Vol 89 (5) ◽  
pp. 1895-1930 ◽  
Author(s):  
Gwen Yu ◽  
Aida Sijamic Wahid
Keyword(s):  
Financial Reporting ◽  
Asset Allocation ◽  
Accounting Standards ◽  
Reporting Standards ◽  
Financial Reporting Standards ◽  
Portfolio Holdings ◽  
Ifrs Adoption ◽  
Mandatory Adoption ◽  
The Difference ◽  
Allocation Decisions

ABSTRACT Do differences in countries' accounting standards affect global investment decisions? We explore this question by examining how accounting distance, the difference in the accounting standards used in the investor's and the investee's countries, affects the asset allocation decisions of global mutual funds. We find that investors tend to underweight investees with greater accounting distance. Using the mandatory adoption of International Financial Reporting Standards (IFRS) as an event that changed the accounting standards of various country-pairs, we examine how two sources of changes in accounting distance—(1) changes due to IFRS adoption of the investee, and (2) changes due to IFRS adoption in the investor's country—affect global portfolio allocation decisions. We find that the tendency to underinvest in investees with greater accounting distance significantly weakens when accounting distance is reduced, either from an investee's IFRS adoption or from IFRS adoption in the investor's country. The latter finding holds despite the fact that IFRS adoption in the investor's country had no impact on the accounting standards under which the investee firms present their financial information; the only change is in the investor's familiarity with these standards. This suggests that differences in accounting standards affect investor demand by imposing greater information-processing costs on those less familiar with the reporting standards.

Lobbying of the IASB: An Empirical Investigation

2011 ◽  
Vol 10 (2) ◽  
pp. 57-75 ◽  
Author(s):  
Thomas Bowe Hansen
Keyword(s):  
Capital Market ◽  
Empirical Investigation ◽  
Home Country ◽  
Accounting Standards ◽  
Recent Change ◽  
Data Availability ◽  
Board Members ◽  
International Accounting Standards ◽  
The Impact ◽  
The U.S

ABSTRACT This paper provides evidence on how the International Accounting Standards Board (IASB) generates accounting standards in the presence of lobbyists with differing preferences. I develop hypotheses regarding the associations between attributes of lobbyists and their lobbying activity, and their lobbying success. I find that lobbying success is positively related to the ability of the lobbyist to provide information to the IASB; however, this success is dependent on the credibility of the lobbyist. I also find evidence that lobbying success is associated with the impact that the lobbyists have on the viability of the IASB, measured by their financial contributions and the size of the capital market in their home country. However, this association is not present when I look only at cases where lobbyists disagree with IASB proposal drafts. This evidence is useful in evaluating the U.S. Securities and Exchange Commission's (SEC) recent considerations regarding the adoption of IFRS by the U.S., as well as the recent change in the structure of the IASB that requires a defined geographic mix of board members by the year 2012. Data Availability: All data are publicly available from sources indicated in the paper.

scholarly journals The impact of educated migrants and R&D expenditures on innovation

2021 ◽  
Vol 16 (1) ◽  
pp. 13-25
Author(s):  
Elena-Alexandra Sinoi
Keyword(s):  
Fixed Effects ◽  
Time Frame ◽  
Innovative Activity ◽  
Impact Factors ◽  
Linear Regression Models ◽  
Highly Educated ◽  
Country Level ◽  
The People ◽  
Key Factor ◽  
The Impact

Abstract Migration has become a topic of great interest of the 21st century, as it triggers multiple advantages and downsides, both for the people and communities implicated, depending on the policies in place. International migration should not be perceived as an issue that needs to be solved, but rather a global phenomenon that can reduce poverty and foster inclusive growth and sustainable development, both in origin and destination countries. The most highly-skilled immigrants represent a key factor in enhancing innovation and technological change processes, which are essential aspects of social and economic development. The purpose of the study is to analyse the impact of highly educated immigrants (with tertiary-educated immigrant employees and foreign PhD students) together with R&D investments on innovative activity (proxied by the number of patents applications), in the case of the ten countries which joined the EU in 2004. The evaluated time frame is from 2011 to 2017. For the econometric analysis of the panel data, we developed fixed-effects linear regression models, at the country-level. The indicators computed are relevant to the innovative activity. The econometric estimations highlight a positive correlation between educated migrants and the number of patent applications in all ten countries. This nexus is even strengthened when we take into consideration other relevant impact factors, such as investments in R&D and human capital. Therefore, the more efforts and investments are devoted to R&D and highly educated individuals, the more predictable the innovation is.

The Determinants and Consequences of Heterogeneous IFRS Compliance Levels Following Mandatory IFRS Adoption: Evidence from a Developing Country

2012 ◽  
Vol 11 (1) ◽  
pp. 83-111 ◽  
Author(s):  
Francesco Bova ◽  
Raynolde Pereira
Keyword(s):  
Developing Country ◽  
Capital Market ◽  
Accounting Standards ◽  
Foreign Ownership ◽  
Economic Incentives ◽  
Alternative View ◽  
Quality Reporting ◽  
Ifrs Adoption ◽  
Country Level ◽  
Private And Public

ABSTRACT The adoption of international accounting standards, namely the IFRS, at the country level has sparked two contrasting, but not mutually exclusive, viewpoints. One view is that IFRS engenders better reporting standards, and uniform adoption allows for greater comparability. The upshot is that IFRS adoption will improve a firm's information environment and hence contribute toward a lower cost of capital. The alternative view is that disclosure quality is shaped by political and economic forces, and hence higher-quality accounting standards will not necessarily translate into higher-quality reporting. We empirically evaluate these arguments on IFRS adoption using both private and public-traded firm observations from Kenya, a developing country with relatively open capital markets but limited enforcement resources. Our analysis takes advantage of a unique dataset involving firm-specific measurements of IFRS compliance. We find that while both private and public firms are required to adhere to IFRS, public, rather than private firms, exhibit greater IFRS compliance. Highlighting the influence of capital market openness, we find that foreign ownership is positively and significantly correlated with IFRS compliance. Probing the underlying causal relationship, additional analysis suggests that greater foreign ownership leads to greater IFRS compliance. Examining the effects of IFRS compliance, higher compliance is positively associated with share turnover. Overall, our evidence illustrates both the importance of economic incentives in shaping IFRS compliance and the capital market benefits to being compliant with IFRS in a low enforcement country. JEL Classifications: M41; M44; M47; G15; G38.

scholarly journals Network Effects in Countries' Adoption of IFRS

2014 ◽  
Vol 89 (4) ◽  
pp. 1517-1543 ◽  
Author(s):  
Karthik Ramanna ◽  
Ewa Sletten
Keyword(s):  
European Union ◽  
Network Effects ◽  
Accounting Standards ◽  
Data Availability ◽  
Sample Period ◽  
The European Union ◽  
Ifrs Adoption ◽  
Institutional Differences ◽  
Alternative Hypotheses ◽  
Economic Ties

ABSTRACT: If the differences in accounting standards across countries reflect relatively stable institutional differences, why did several countries rapidly adopt IFRS in the 2003–2008 period? We test the hypothesis that perceived network benefits from the extant worldwide adoption of IFRS can explain part of a country's shift away from local accounting standards. We find that perceived network benefits increase the degree of IFRS harmonization among countries and that smaller countries have a differentially higher response to these benefits. Further, economic ties with the European Union are a particularly important source of network effects. The results, robust to numerous alternative hypotheses and specifications, suggest IFRS adoption was self-reinforcing during the sample period, which, in turn, has implications for the consequences of IFRS adoption. Data Availability: Most data are available from public sources identified in the text; hand-collected data are available upon request.

The essence of equity capital and its structuring for accounting needs

2017 ◽  
pp. 117-126
Author(s):  
Iryna Nazarova
Keyword(s):  
Accounting Standards ◽  
Financial Statements ◽  
Capital Allocation ◽  
Equity Capital ◽  
National Standards ◽  
Equity Structure ◽  
Key Factor ◽  
Business Property ◽  
Informational Value

The paper considers various interpretations of the essence of equity capital. The concept of equity capital is viewed from the perspective of property as a venture capital, i. e. business property, which does not guarantee profits and dividends, and for which there is no clear schedule of returning funds to investors and shareholders. The most common equity capital components in national and foreign practice are examined and compared. It is pointed out that the equity components mainly used in Ukraine are defined by the National Accounting Standards. Alternatively, the structure of equity capital components in foreign practice relies on the Conceptual Framework of Financial Statements, but it is further detailed by national standards of each country and depends on its policy and accounting characteristics. The structure of equity capital in foreign practice may be influenced by shareholders’ decisions on the establishment of funds (additional capital), allocation of profits, transactions with treasury shares. It is made clear that in most countries equity capital components include joint stock capital, surplus reserves, and retained profit. The article reviews the classification of equity capital, viewed as the key factor, and determines its influence on accounting principles and policies. It is concluded that in regulatory documents, there are no clear lines between types of equity capital. The paper also discusses various views of scholars on equity capital arrangement. It is found that in research works, equity capital is classified based on various characteristics, but the majority of researchers consider sources of equity capital to be the main criterion. In addition, there is no consensus among academics as to what types of equity capital can be singled out by the criterion described. Taking into consideration some proposals of scholars and foreign practice related to ac- counting of equity capital, the author develops a generalized structure of equity capital which is based on the sources of capital formation and includes: invested capital, particularly registered capital (statutory and mandatory share capital), corrective capital (unpaid and withdrawn capital), additional capital (capital received from investors for stock that exceeds the par value of the stock, i.e. additional equity capital); acquired capital (assets received for free, capital formed from revaluation of assets, other capital) and reinvested capital (retained profits (uncovered losses) and surplus reserves). The above equity structure can be used to prepare financial statements in order to increase its informational value. Proposals are given on how to improve methods for accounting of equity capital, in particular accounting of additional capital invested by founders in the account entitled “Non-registered investments of owners”.

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