IAS Versus U.S. GAAP: Information Asymmetry–Based Evidence from Germany's New Market


  • I gratefully acknowledge helpful comments from Anne d'Arcy, George Benston, Phil Berger, Gus De Franco, Robert Holthausen, Peter Knutson, Christian Laux, S. P. Kothari, Claudia Röder, Robert Verrecchia, and especially Ray Ball and the anonymous referee. This paper has benefited from presentations at the American Enterprise Institute, University of California at Berkeley, Columbia University, Harvard University, J. W. Goethe Universität Frankfurt, MIT, University of Michigan, Stanford University, Tilburg University, the EAA Meetings (Munich) and the EFA Meetings (Barcelona). I would also like to thank Uwe Schweickert (Deutsche Börse), Peter Gomber (Deutsche Börse), Jörg Hueber (KPMG), Rainer Jäger (PWC), and IBES for generously providing data for this study, and Tobias Herwig for his excellent research assistance. I also gratefully acknowledge financial support by the Wharton Electronic Business Initiative (WeBI).


Motivated by the debate about globally uniform accounting standards, this study investigates whether firms using U.S. generally accepted accounting principles (GAAP) vis-à-vis international accounting standards (IAS) exhibit differences in several proxies for information asymmetry. It exploits a unique setting in which the two sets of standards are put on a level playing field. Firms trading in Germany's New Market must choose between IAS and U.S. GAAP for financial reporting, but face the same regulatory environment otherwise. Thus, institutional factors such as listing requirements, market microstructure, and standards enforcement are held constant. In this setting, differences in the bid-ask spread and share turnover between IAS and U.S. GAAP firms are statistically insignificant and economically small. Subsequent analyses of analysts' forecast dispersion, initial public offering underpricing, and firms' standard choices corroborate these findings. Thus, at least for New Market firms, the choice between IAS and U.S. GAAP appears to be of little consequence for information asymmetry and market liquidity. These findings do not support widespread claims that U.S. GAAP produce financial statements of higher informational quality than IAS.