Mandatory IFRS Adoption and the U.S. Home Bias
48 Pages Posted: 25 Jun 2011 Last revised: 24 Oct 2011
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Mandatory IFRS Adoption and the U.S. Home Bias
Mandatory IFRS Adoption and the U.S. Home Bias
Date Written: June 30, 2011
Abstract
This paper examines whether mandatory IFRS adoption at the country level lowers U.S. investors’ propensity to overweight domestic stocks in their common stock portfolios (generally referred to as home bias). We find that, on average, U.S. home bias decreases for countries that mandate IFRS adoption, after controlling for country-fixed effects. We also find that the reduction in the U.S. home bias after the mandatory adoption of IFRS is greater for countries with larger differences between IFRS and their domestic accounting standards, for countries with a stricter rule of law and a common law legal origin, and in countries with greater incentives to report high-quality financial information. Overall, our results indicate that a common set of global accounting standards matter for portfolio holdings of U.S. investors and that U.S investors regard the enforcement of standards to be a key factor in making investments outside the U.S.
Keywords: International Accounting, International Financial Reporting Standards, Home Bias, U.S. Investments
JEL Classification: M41
Suggested Citation: Suggested Citation
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