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Home Bias, Foreign Mutual Fund Holdings, and the Voluntary Adoption of International Accounting Standards


  • We thank the following for their helpful comments: Cristi Gleason, Karl Hackenbrack, Mari Paananen, Mort Pincus, Scott Richardson, Charles Shi, Abbie Smith (editor), an anonymous reviewer, and workshop participants at the Boston Area Research Colloquium, Chinese University of Hong Kong, University of California at Irvine, University of California at Riverside, International Accounting Section Midyear Conference, University of Iowa, UNC Global Issues in Accounting Conference, University of Pennsylvania, Penn State University, and Vanderbilt University. We also thank Siqi Li for excellent research assistance.


We test the assertion that a consequence of voluntarily adopting International Accounting Standards (IAS) is the enhanced ability to attract foreign capital. Using a unique database that reports firm-level holdings of over 25,000 mutual funds from around the world, our multivariate tests find that average foreign mutual fund ownership is significantly higher among IAS adopters. We also find that IAS adopters in poorer information environments and with lower visibility have higher levels of foreign investment, consistent with firms using IAS adoption to provide more information and/or information in a more familiar form to foreign investors. Taken together, our findings are consistent with voluntary IAS adoption reducing home bias among foreign investors and thereby improving capital allocation efficiency.