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International Differences in GAAP and the Pricing of Earnings
Author(s) -
Pope Peter F.,
Rees William P.
Publication year - 1992
Publication title -
journal of international financial management and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.818
H-Index - 37
eISSN - 1467-646X
pISSN - 0954-1314
DOI - 10.1111/j.1467-646x.1992.tb00029.x
Subject(s) - earnings , explanatory power , accounting , business , earnings response coefficient , stock (firearms) , empirical evidence , sample (material) , economics , mechanical engineering , philosophy , epistemology , engineering , chemistry , chromatography
This study investigates the information content of two alternative accounting earnings measures constructed under U.K. and U.S. GAAP. The analysis is based on the 20‐F SEC filings by U.K. domiciled companies having ADRs listed in the U.S. The research design involves testing the association between U.K. stock returns and alternative accounting numbers. The evidence suggests that, for the sample examined, U.K. GAAP earnings changes have incremental information content after controlling for U.S. GAAP earnings changes, but that earnings levels measured under U.S. GAAP have some independent incremental information content after controlling for U.K. GAAP earnings. The results are consistent with GAAP adjustments having a significant transitory component. The empirical results display explanatory power which is broadly consistent with previous work and the GAAP earnings adjustments add marginally to the ability of earnings to explain returns.