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Title: "Domestic Accounting Standards, International Accounting Standards, and the Predictability of Earnings"
Authors: Hollis Ashbaugh Assistant Professor Department of Accounting and Information Systems
Morton Pincus Associate Professor Tippie College of Business The University of Iowa
Source: Journal of Accounting Research, Volume 39, Issue 3, pages 417-434, December 2001
Publication Date: April 2 2000
Free/Fee: Payment or membership required
Reads: 6047
Abstract: We investigate (1) whether the variation in accounting standards across national boundaries relative to International Accounting Standards (IAS) has an impact on the ability of financial analysts to forecast non-US firms' earnings accurately, and (2) whether analyst forecast accuracy changes after firms adopt IAS. IAS are a set of financial reporting policies that typically require increased disclosure and restrict management's choices of measurement methods relative to the accounting standards of our sample firms' countries of domicile. We develop indexes of differences in countries' accounting disclosure and measurement policies relative to IAS, and document that greater differences in accounting standards relative to IAS are significantly and positively associated with the absolute value of analyst earnings forecast errors. Further, we show that analyst forecast accuracy improves after firms adopt IAS. More specifically, after controlling for changes in the market value of equity, changes in analyst following, and changes in the number of news reports, we find that the convergence in firms' accounting policies brought about by adopting IAS is positively associated with the reduction in analyst forecast errors.
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