International accounting harmonization and global equity markets 1 We thank workshop participants at the 1998 Journal of Accounting and Economics Conference, especially Robert Verrecchia, the discussant, 1997 Stanford Graduate School of Business Summer Camp, University of California at Berkeley, University of Chicago, Duke University, Massey University, and the University of New South Wales, and an anonymous reviewer for helpful comments. Mary Barth appreciates funding from the Financial Research Initiative at Stanford University Graduate School of Business and the Class of 1969 Faculty Fellowship. Greg Clinch appreciates funding from the Australian Graduate School of Management and the Australian Research Council. Toshi Shibano appreciates funding from the University of Chicago Graduate School of Business. 1

International accounting harmonization and global equity markets 1 We thank workshop participants... We show harmonizing domestic GAAP with foreign GAAP can have deleterious effects on security market performance, specifically price informativeness and trading volume. Harmonization effects result from interaction between two forces. Direct informational effects depend on whether harmonization increases or decreases GAAP precision. Expertise acquisition effects depend on benefits and costs to foreign investors of becoming domestic GAAP experts. These countervailing forces can result in harmonization to more (less) precise GAAP increasing (decreasing) or, unexpectedly, decreasing (increasing) price informativeness and trading volume. We also observe this for a cost of capital metric. Thus, harmonization is not necessarily a desirable singular goal. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

International accounting harmonization and global equity markets 1 We thank workshop participants at the 1998 Journal of Accounting and Economics Conference, especially Robert Verrecchia, the discussant, 1997 Stanford Graduate School of Business Summer Camp, University of California at Berkeley, University of Chicago, Duke University, Massey University, and the University of New South Wales, and an anonymous reviewer for helpful comments. Mary Barth appreciates funding from the Financial Research Initiative at Stanford University Graduate School of Business and the Class of 1969 Faculty Fellowship. Greg Clinch appreciates funding from the Australian Graduate School of Management and the Australian Research Council. Toshi Shibano appreciates funding from the University of Chicago Graduate School of Business. 1

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Publisher
Elsevier
Copyright
Copyright © 1999 Elsevier Science B.V.
ISSN
0165-4101
DOI
10.1016/S0165-4101(98)00038-X
Publisher site
See Article on Publisher Site

Abstract

We show harmonizing domestic GAAP with foreign GAAP can have deleterious effects on security market performance, specifically price informativeness and trading volume. Harmonization effects result from interaction between two forces. Direct informational effects depend on whether harmonization increases or decreases GAAP precision. Expertise acquisition effects depend on benefits and costs to foreign investors of becoming domestic GAAP experts. These countervailing forces can result in harmonization to more (less) precise GAAP increasing (decreasing) or, unexpectedly, decreasing (increasing) price informativeness and trading volume. We also observe this for a cost of capital metric. Thus, harmonization is not necessarily a desirable singular goal.

Journal

Journal of Accounting and EconomicsElsevier

Published: Jan 1, 1999

References

  • Disclosure, liquidity, and the cost of capital
    Diamond, D.W.; Verrecchia, R.E.

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