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International GAAP Differences: The Impact on Foreign Analysts

Kee‐Hong Bae · Hongping Tan · Michael Welker

568 citations0/0 files storedThe Accounting Review

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Auditing, Earnings Management, Governance Accounting Theory and Financial Reporting Forecasting Techniques and Applications

Abstract

This paper investigates the relation between differences in accounting standards across countries and foreign analyst following and forecast accuracy. We develop two measures of differences in generally accepted accounting principles (GAAP) for 1,176 country-pairs. We then examine the impact of these measures of accounting differences on foreign analysts. In so doing, we utilize a unique database that identifies the location of financial analysts around the world, creating a sample that covers 6,888 foreign analysts making a total of 43,968 forecasts for 6,169 firms from 49 countries during 1998–2004. We find that the extent to which GAAP differs between two countries is negatively related to both foreign analyst following and forecast accuracy. Our results suggest that GAAP differences are associated with economic costs for financial analysts.

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References

1998Law and Finance 2003Earnings management and investor protection: an international comparison 2004What Determines Corporate Transparency?2003Incentives versus standards: properties of accounting income in four East Asian countries 2005Does financial liberalization spur growth?1999Analyst forecast accuracy: Do ability, resources, and portfolio complexity matter?2006International Financial Reporting Standards (IFRS): pros and cons for investors 2003Disclosure Practices, Enforcement of Accounting Standards, and Analysts' Forecast Accuracy: An International Study

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