Ole-Kristian Hope Tony Kang Wayne B. Thomas Florin Vasvari
Abstract
We investigate the effects of the introduction of Statement of Financial Accounting Standards No. 131 (SFAS 131) on the market's valuation of foreign earnings. Thomas (1999) documents that investors discount the value of foreign earnings for US multinational companies. He conjectures but does not test the possibility that this finding is due to poor disclosure related to foreign operations. We find strong evidence that the introduction of the standard is positively associated with the pricing of foreign earnings. In addition, we use both the Mishkin (1983) test and a zero-investment hedge portfolio test and find that investors' mispricing of foreign earnings lessens (and in fact disappears) after SFAS 131. This study is one of the first attempts to show that improved disclosure reduces mispricing. Copyright (c) 2008 The Authors Journal compilation (c) 2008 Blackwell Publishing Ltd.
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Volume (Year): 35 (2008-04) Issue (Month): 3-4 () Pages: 281-306 Download reference. The following formats are available: HTML
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