Does accounting choice influence U.S. investment in non-U.S. companies? : evidence from U.S. institutional investment in Australian firms

The adoption of International Accounting Standards is predicated upon the assumption that this will lower the cost of analysis for international investors by standardizing accounting policies. It is posited that companies that choose accounting methods more familiar to investors reduce information asymmetry and increase credibility of their financial statements to those investors, thereby attracting higher levels of foreign investment. The results suggest that large U.S. institutional holdings in Australian companies are associated with ADR listing and, incrementally, companies’ choice of accounting methods that conform to U.S. GAAP. While making accounting choices in compliance with U.S. GAAP is significantly associated with higher levels of institutional ownership in a statistical sense, examination of the specific differences in accounting choices suggests that the economic significance of these differences is relatively minor.46 page(s