Foreign Institutional Ownership and the Global Convergence of Financial Reporting Practices

Vivian W. Fang, Mark Maffett, Bohui Zhang

Research output: Contribution to journalArticlepeer-review

27 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)593-631
Number of pages39
JournalJournal of Accounting Research
Volume53
Issue number3
DOIs
StatePublished - Jun 1 2015

Keywords

  • Analyst forecasts
  • Auditor selection
  • Corporate governance
  • Financial statement comparability
  • Institutional investors
  • Mutual funds
  • U.S. GAAP

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