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


  • Accepted by Philip Berger. This paper is based on my dissertation at the Wharton School, University of Pennsylvania. I am indebted to my dissertation committee members Brian Bushee, Luzi Hail, Cathy Schrand (Chair), and Ro Verrecchia for their continuous and invaluable guidance. I appreciate the helpful comments of an anonymous referee, Gus De Franco, Wayne Guay, Mirko Heinle, Ray Ke, Jim Naughton, Ira Yeung, and workshop participants at the University of Pennsylvania, University of Chicago, University of Toronto, Harvard University, Boston College, University of Michigan, New York University, Northwestern University, Emory University, Duke University, University of Southern California, and Washington University in St. Louis. I gratefully acknowledge the financial support from the Wharton School, the Connie K. Duckworth Endowed Doctoral Fellowship, and the Kellogg School of Management.


This paper investigates whether accounting standards harmonization enhances the comparability of financial information across countries. I hypothesize that a firm yet to announce earnings reacts more strongly to the earnings announcement of a foreign firm when both report under the same rather than different accounting standards. My analysis of abnormal price reactions for a global sample of firms supports the prediction. Next, in an attempt to control for the underlying economic comparability and the effects of changes in reporting quality, I use a difference-in-differences design around the mandatory introduction of International Financial Reporting Standards. I find that mandatory adopters experience a significant increase in market reactions to the release of earnings by voluntary adopters compared to the period preceding mandatory adoption. This increase is not observed for nonadopters. Taken together, the results show that accounting standards harmonization facilitates transnational information transfer and suggest financial statement comparability as a direct mechanism.