The Impact of Firm Characteristics on Trading Volume Reaction to the Earnings Reconciliation from IFRS to U.S. GAAP

Posted: 26 Mar 2012

Date Written: March 23, 2012

Abstract

The U.S. SEC voted in November 2007 to accept financial statements prepared under IFRS as issued by the IASB without reconciliation to U.S. GAAP for foreign firms. We find that earnings reconciliation from IFRS to U.S. GAAP is positively and significantly associated with abnormal trading volume in the U.S. markets around the release of earnings reconciliation from 2005 to 2006. However, the relation between abnormal trading volume and earnings reconciliation during this period is driven by first-time IFRS users with low institutional holdings. In addition, we do not find any evidence that such a relation depends upon whether a firm applies IFRS as issued by the IASB or jurisdictional versions of IFRS. Extending our sample to 1995-2006 period, we document that the information content of earnings reconciliation is smaller for firms with high institutional holdings than for firms with low institutional holdings. Overall, our evidence provides some insight to the SEC when evaluating its decision to eliminate the reconciliation and contemplating to allow the use of IFRS by U.S. domestic firms.

Keywords: Earnings reconciliation, Trading volume reaction, Institutional ownership, First-time IFRS user

JEL Classification: M41, G15

Suggested Citation

Chen, Lucy Huajing and Sami, Heibatollah, The Impact of Firm Characteristics on Trading Volume Reaction to the Earnings Reconciliation from IFRS to U.S. GAAP (March 23, 2012). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2028085

Lucy Huajing Chen (Contact Author)

Villanova University ( email )

United States
610-519-6321 (Phone)

Heibatollah Sami

Lehigh University ( email )

Bethlehem, PA 18015
United States
610-758-3407 (Phone)

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