Mohammad S. Bazaz and David L. Senteney
This study uses an equity valuation model to investigate the extent to which SFAS No. 52 unrealized foreign currency translation gains and losses are reflected in levels of equity…
Abstract
This study uses an equity valuation model to investigate the extent to which SFAS No. 52 unrealized foreign currency translation gains and losses are reflected in levels of equity security prices. Equity security price is used as the dependent variable in our selected model. Book value of equity (adjusted for the cumulative translation gain or loss), earnings, and cumulative translation gains and losses are used as independent variables. Our results indicate that, generally, translation gains and losses are valued, but losses have a greater impact than gains and the value seems to change over time in setting the levels of equity share prices of USbased MNCs. On a pooled basis, the results are clearly statistically significant, although the statistical significance of the results appears to vary with the annual time period examined. Our results are consistent with the SFAS No. 52 intention that these gains and losses be treated as unrealized as the net exposure is considered long‐term in nature for foreign currency functional currency subsidiaries. Our results appear consistent with extant literature suggesting that unrealized foreign currency translation gains and losses are directly valued ‐ although not dollar for dollar ‐ in a manner similar to earnings (i.e., unrealized gains are associated with positive equity returns and unrealized losses are associated with negative equity returns).
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This study investigates how investors perceive the impact of U.S.‐based MNCs geographic and business segment diversification upon their earnings performance. Pooled…
Abstract
This study investigates how investors perceive the impact of U.S.‐based MNCs geographic and business segment diversification upon their earnings performance. Pooled cross‐sectional annual earnings response regressions for the years 1993 through 1997 are used for this investigation. Our results show that geographic segment diversification is valued by investors more than the business segment diversification especially in two cases: 1) when the business segmentation is low; and 2) when geographic segmentation is high. These results imply that business segment diversification is only valued when it takes place in international markets where it is relatively more difficult for individual investors to replicate industry diversified portfolio for themselves. Our research illuminates the contextual aspects of investors' perceptions of geographic and business segment diversification for multinational corporations by explicitly controlling for one dimension of corporate diversification while examining the earning‐returns impact of the other type of corporate diversification.
David L. Senteney, Grace H. Gao and Mohammad S. Bazaz
This paper aims to investigate the impact of the filing of Form 20-F to the Securities and Exchange Commission (SEC) on short-term trading volume and return by those foreign firms…
Abstract
Purpose
This paper aims to investigate the impact of the filing of Form 20-F to the Securities and Exchange Commission (SEC) on short-term trading volume and return by those foreign firms which list their securities in the US Stock Exchanges.
Design/methodology/approach
The authors collected 402 American depository receipt (ADR) firms from 38 different countries that listed their securities in the US Stock Exchanges over a 10-year period of 2000-2009. A regression model was used to examine such impact, including the post year 2007 SEC elimination of reconciliation.
Findings
This paper found significant abnormal trading volumes and abnormal returns one day, two days and three days following the 20-F report for the sample firms whose financial statements were prepared under both home-country accounting principles and US generally accepted accounting principles (GAAP). Firms originally using international financial reporting standards (IFRS) do not present abnormal return and abnormal trading volume. This indicates that US investors view IFRS to be as high-quality as US GAAP.
Research limitations/implications
The findings might be limited to this period and might not draw statistical inference for the future period. This evidence offers support for the SEC’s elimination of the reconciliation requirement to US GAAP.
Practical implications
This study was carried out with the aim to investigate whether the release of Form 20-F by ADR firms offers any additional information useful to investors incorporating both abnormal return and trading volume, which is thought to be more sensitive.
Originality/value
This paper investigates the short-term return and volume reactions caused by the earnings and equity reconciliation from home-country accounting standards or IFRS to US GAAP for foreign cross-listed firms in the USA.
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David Alexander and Olesea Ghedrovici
The Republic of Moldova is a small country between Romania and Ukraine, which for more than 20 years since its independence, is still experiencing a painful process of economic…
Abstract
Purpose
The Republic of Moldova is a small country between Romania and Ukraine, which for more than 20 years since its independence, is still experiencing a painful process of economic and institutional reforms. The chapter provides, against a review of literature and national regulations, an analysis and possible perspectives of accounting harmonization processes in relation to historical and cultural preconditions.
Approach/methodology
Based on content analysis of national regulations and economic conditions in the Republic of Moldova, with the support of a literature review.
Findings
Our findings demonstrate that some features related to mentality, which have been formed as a result of long term political and cultural closeness and negation of individualistic and independent thinking values, are determining many contemporaneous changes in all spheres, including accounting.
Originality/scientific value
There are very few publications about accounting processes in the Republic of Moldova. It is important to analyze the case of the Republic of Moldova in the context of accounting transformation in post-Soviet countries, as almost all of them have similar historical and cultural implications. The research results may be useful for further studies about accounting evolution in post-communist states and also in the Republic of Moldova itself.
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Songlan Peng and Kathryn Bewley
This paper seeks to assess the feasibility and desirability of a major emerging economy adopting and implementing fair value accounting (FVA), as codified in the International…
Abstract
Purpose
This paper seeks to assess the feasibility and desirability of a major emerging economy adopting and implementing fair value accounting (FVA), as codified in the International Financial Reporting Standards (IFRS), by studying China's recent experience.
Design/methodology/approach
The paper examines the extent of FVA adoption in China's new accounting standards (“2007GAAP”), reasons for differences from the International Accounting Standard Board's IFRS, and how 2007GAAP has been implemented in practice. Data are obtained from content analyses of IFRS and 2007GAAP FVA requirements, critical assessments of standard setters' official statements, and analyses of empirical evidence from official reports, media, and academic research.
Findings
The authors find a high degree of adoption of IFRS FVA standards in China's 2007GAAP for financial instruments, but many differences for non‐financial long‐term asset investments. Standard setters justify this divergence by fundamental characteristics of the Chinese environment. The resulting differences from IFRS in the 2007GAAP FVA standards, and in their implementation, challenge official claims of “substantial convergence” between 2007GAAP and IFRS. Hence, the benefits desired by Chinese regulators from adopting FVA and international accounting convergence to IFRS may not be realized.
Research limitations/implications
The findings are derived from aggregated data in government reports. These findings can be extended in future research by examining specific implementation outcomes in company financial statements.
Originality/value
The paper contributes a timely critical examination of a major emerging economy's convergence with the controversial FVA requirements, which supports the IFRS's standing as a high quality set of accounting standards. The findings provide new insights into factors that can impede international accounting convergence in emerging economies.