Accounting Standards Harmonization and Financial Statement Comparability: Evidence From Transnational Information Transfer

This study investigates whether harmonization of accounting standards enhances the comparability of …nancial information across countries. First, I statistically de…ne and link comparability to …rm value in a two-…rm, sequential information release framework. I then empirically test the prediction that a …rm yet to announce earnings reacts more strongly to the earnings announcement of a foreign …rm when both report under the same rather than di¤erent accounting standards. My analysis of abnormal price and volume reactions for a global sample of …rms supports this prediction. Next, in an attempt to control for the e¤ects of changes in reporting quality, I use a di¤erence-in-di¤erences design around the mandatory introduction of International Financial Reporting Standards (IFRS). I …nd that mandatory adopters experience a signi…cant increase in market reactions to the release of earnings by voluntary adopters compared to pre-mandatory adoption. This increase is not observed for non-adopters over the same period. Taken together, my study shows that accounting standards harmonization facilitates transnational information transfer, and suggests comparability as a direct mechanism. I thank my dissertation committee members Brian Bushee, Luzi Hail, Catherine Schrand (Chair) and Robert Verrecchia for their continuous and invaluable guidance. I also thank Gus De Franco, Wayne Guay, Mirko Heinle, Ray Ke and Rick Lambert for their helpful comments. I gratefully acknowledge the …nancial support from the Wharton School and the Connie K. Duckworth Endowed Doctoral Fellowship.