05 International accounting (Including IFRS) (IA)
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ItemCross-Border Investments in Private Firms: The Benefits of Comparability for Foreign Investors( 2022)We examine the benefits of accounting comparability for cross-border investments in private firms. Exploiting a quasi-experimental setting, we examine the effect of an increase in accounting comparability using a difference-in-differences research design. We find that increases in accounting comparability after a major accounting reform leads to an average increase in foreign ownership of about 2 to 6 percent. Cross-sectional and industry results confirm that the effect is stronger for smaller, highly profitable, intangible-intensive, and more stable firms that are in the consumer durables and manufacturing industries. The findings are robust to alternative matching procedures, various measurement windows, and a placebo-test. Our large sample evidence based on private firms provides insights on the effects of increasing the comparability of local GAAP for foreign-direct investments in private firms. Additionally, our findings are relevant to standard setters as countries converge towards and endorse International Financial Reporting Standards and update their local GAAP.
ItemInternational Auditing Standards, Audit Quality, and Information Asymmetry( 2022)Using hand-collected data on public firms listed on the Alternative Investment Market (AIM) in the U.K. between 2000 and 2007, we investigate whether mandatory adoption of International Standards on Auditing (ISA) for auditors affects audit quality and information asymmetry. In a difference-in-differences analysis, we find that the probability of receiving a going-concern opinion is greater while the propensity to report a small profit and the level of absolute accruals are smaller for AIM firms following ISA adoption relative to a control group. These results are unlikely driven by the mandatory adoption of International Financial Reporting Standards (IFRS), as AIM firms are not required to adopt IFRS in our sample period. We also find a significant reduction in information asymmetry for AIM firms after ISA adoption, measured by the number of zero-return days, bid-ask spreads, and price impact of trades. Our results suggest that mandatory ISA adoption for auditors enhances audit quality and capital market information environment.