International Accounting Differences and Their Relation to Share Prices: Evidence from U.K., Australian, and Canadian Firms
Posted: 6 Mar 1996
We synthesize and extend research exploring differences between U.S. and other countries' GAAP by investigating whether differences between domestic and U.S. GAAP for U.S.- listed U.K., Australian, and Canadian firms are associated with firms' returns and prices. The accounting differences we investigate include goodwill, asset revaluations, income taxes, pensions, interest capitalization, foreign currency, and extractive industries accounting. We conclude that goodwill is priced as an asset; asset revaluations, successful efforts accounting for extractive industries, and immediate recognition of foreign currency exchange gains and losses on long-term assets and liabilities generally are uncorrelated with information investors consider relevant; U.K., U.S., and Australian tax accounting methods do not recognize "enough" tax expense or liability; accrual pension accounting adds explanatory power beyond Australia's cash- based method, and in some specifications, so does interest capitalization. Our findings suggest that the SEC-required GAAP reconciliation reflects information useful to investors for U.K., Australian, and, to a more limited extent, Canadian firms.
JEL Classification: M41, F33
Suggested Citation: Suggested Citation