Accounting Standards and International Portfolio Holdings

By Gwen Yu, Aida Sijamic Wahid. 2014

129 citations recorded by the source corpus.

ABSTRACT: Do differences in countries' accounting standards affect global investment decisions? We explore this question by examining how accounting distance, the difference in the accounting standards used in the investor's and the investee's countries, affects the asset allocation decisions of global mutual funds. We find that investors tend to underweight investees with greater accounting distance. Using the mandatory adoption of International Financial Reporting Standards (IFRS) as an event that changed the accounting standards of various country-pairs, we examine how two sources of changes in accounting distance—(1) changes due to IFRS adoption of the investee, and (2) changes due to IFRS adoption in the investor's country—affect global portfolio allocation decisions. We find that the tendency to underinvest in investees with greater accounting distance significantly weakens when accounting distance is reduced, either from an investee's IFRS adoption or from IFRS adoption in the investor's country. T...

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Citations in the corpus

Foreign institutional ownership and auditor choice: Evidence from worldwide institutional ownership (2018, background): “Prior literature suggests institutional investors are more likely to invest in more transparent countries or firms (Bushee and Noe 2000; Chou et al. 2014; Leuz et al. 2010; Yu and Wahid 2014).”
A review of the IFRS adoption literature (2016, methodology): “7 For a detailed history of the IASC and its evolution into the IASB, we refer the reader to studies by Camffermann and Zeff (2007) and Zeff (2012).”
Convergence of Accounting Standards and Foreign Direct Investment (2014, unknown): “Second, adoption of IFRS is associated with lower costs of equity capital, which is an important benefit that attracts investments (Chan et al., 2006; Yu, 2009).”
Societal Trust and Management Earnings Forecasts (2020, background): “Disclosure Requirement is the index developed by La Porta et al. (2006) to capture a country’s requirement of the delivery of a prospectus to potential investors and the extent of affirmative disclosure requirements in five areas.”