Trading Volume Reaction to the Earnings Reconciliation from IAS to U.S. GAAP

Posted: 6 Jun 2007


This paper examines trading volume reaction to the reconciliation of IAS-based earnings to U.S. GAAP-based earnings. The sample includes foreign firms listed in the U.S. that use IAS as their primary reporting standards and reconcile their earnings to U.S. GAAP during the period of 1995-2004. The research question is of particular interest to policy makers, especially the SEC, when evaluating the necessity of reconciling the earnings from IAS to U.S. GAAP. We find that the absolute magnitude of earnings reconciliation is significantly and positively associated with abnormal trading volume both in the U.S. markets and in the local markets around Form 20-F filing dates, which supports the assertion that earnings reconciliation provides additional information content to investors beyond that provided by IAS earnings. We also find limited evidence that investors use book value reconciliations in their trading decisions. These findings also hold for various event windows. Additional analyses after the Core Standards Project and for several model specifications generally show a stronger and faster reaction in the U.S. markets than in the local markets. Our results have implications for recent SEC consideration of eliminating the reconciliation requirement for foreign firms that use IFRS in preparing their financial statements.

Keywords: Trading volume reaction, Earnings reconciliation, Form 20-F, IAS

JEL Classification: M41, M44, M45, G15

Suggested Citation

Chen, Lucy Huajing and Sami, Heibatollah, Trading Volume Reaction to the Earnings Reconciliation from IAS to U.S. GAAP. Contemporary Accounting Research, Forthcoming, Available at SSRN:

Lucy Huajing Chen

Villanova University ( email )

United States
610-519-6321 (Phone)

Heibatollah Sami (Contact Author)

Lehigh University ( email )

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics