Articlehybrid1999

International accounting harmonization and global equity markets

Mary E. Barth · Greg Clinch · Toshi Shibano

184 citations0/0 files storedJournal of Accounting and Economics

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Auditing, Earnings Management, Governance Financial Markets and Investment Strategies Accounting Theory and Financial Reporting

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.

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References

1985Continuous Auctions and Insider Trading 1980On the Impossibility of Informationally Efficient Markets 1991Disclosure, Liquidity, and the Cost of Capital 1980On the Impossibility of Informationally Efficient Markets 1980On the aggregation of information in competitive markets 1981Information aggregation in a noisy rational expectations economy 1982Information Acquisition in a Noisy Rational Expectations Economy 1991Market reaction to anticipated announcements

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