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Foreign Institutional Ownership and the Global Convergence of Financial Reporting Practices
Author(s) -
FANG VIVIAN W.,
MAFFETT MARK,
ZHANG BOHUI
Publication year - 2015
Publication title -
journal of accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 6.767
H-Index - 141
eISSN - 1475-679X
pISSN - 0021-8456
DOI - 10.1111/1475-679x.12076
Subject(s) - comparability , convergence (economics) , accounting , business , audit , affect (linguistics) , institutional investor , emerging markets , foreign ownership , index (typography) , cross listing , foreign direct investment , monetary economics , finance , economics , corporate governance , macroeconomics , linguistics , philosophy , mathematics , combinatorics , world wide web , computer science
This paper investigates whether foreign institutional investors affect the global convergence of financial reporting practices. Using several measures of reporting convergence, we show that U.S. institutional ownership is positively associated with subsequent changes in emerging market firms’ accounting comparability to their U.S. industry peers. We identify this association using an instrumental variable approach that exploits exogenous variation in U.S. institutional investment generated by the JGTRRA Act of 2003. Further, we provide evidence of a specific mechanism—the switch to a Big Four audit firm—through which U.S. institutional investors affect reporting convergence. Finally, we show that, for emerging market firms, an increase in comparability to U.S. firms is associated with an improvement in the properties of foreign analysts’ forecasts.