Differential Levels of Disclosure and the Earnings-Return Association: Evidence from Foreign Registrants in the United States

18 Pages Posted: 26 Sep 2003 Last revised: 14 Feb 2023

See all articles by Edward B. Douthett

Edward B. Douthett

George Mason University - School of Business

Jonathan E. Duchac

Wake Forest University - Schools of Business

In-Mu Haw

Texas Christian University - M.J. Neeley School of Business

Steve C. Lim

Texas Christian University - M.J. Neeley School of Business

Abstract

Foreign companies listing on U.S. exchanges are required to report financial information under U.S. GAAP on Form 20-F using either Item 17 or Item 18 disclosure rules. These two disclosure rules differ in that Item 17 allows many exemptions from U.S. GAAP, while Item 18 requires disclosure of all financial information in accordance with U.S. GAAP. This study examines the differential earnings-return association between Item 17 and Item 18 filers.

We find significantly higher earnings-return associations for Item 18 filers than for Item 17 filers. While the earnings-return association of Item 18 foreign firms is not different from that of matched U.S. firms (which fundamentally use Item 18 rules), the earnings-return association of Item 17 foreign firms is significantly lower than that of matched U.S. firms. Overall, the results are consistent with the idea that higher levels of disclosure may be related to lower discount rates and higher earnings response coefficients.

Keywords: Disclosure, Earnings response coefficient, Item 17 or Item 18 financial statment rule, SEC form 20-F

JEL Classification: M41, M45, K22, G12, G28, O16, F39

Suggested Citation

Douthett, Edward B. and Duchac, Jonathan E. and Haw, In-Mu and Lim, Steve, Differential Levels of Disclosure and the Earnings-Return Association: Evidence from Foreign Registrants in the United States. International Journal of Accounting, Vol. 38, No. 2, pp. 117-242, Summer 2003, Available at SSRN: https://ssrn.com/abstract=439480

Edward B. Douthett (Contact Author)

George Mason University - School of Business ( email )

Jonathan E. Duchac

Wake Forest University - Schools of Business ( email )

P.O. Box 7659
Winston-Salem, NC 27109-7285
United States
910-759-4458 (Phone)
910-759-6133 (Fax)

In-Mu Haw

Texas Christian University - M.J. Neeley School of Business ( email )

Fort Worth, TX 76129
United States
817-921-7563 (Phone)
817-921-7227 (Fax)

Steve Lim

Texas Christian University - M.J. Neeley School of Business ( email )

2900 Lubbock Street
Fort Worth, TX 76129
United States
817-257-7536 (Phone)

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