The influence of differences in accounting standards on empirical pricing models: An application to the Fama-French model
AbstractWe analyze the effect of cross-country differences in accounting standards on the empirical performance of financial pricing models. We show how the lack of uniform accounting standards across countries generates inconsistent estimates of the model parameters, and leads to rejection of the validity of the model. As an empirical application, we analyze how differences in accounting standards affect the performance of the Fama-French (1993) three-factor pricing model. We show that the F-F model is accounting-specific: it works better if the data are homogeneous in terms of accounting standards. This result has an important empirical corollary: the model accounts extremely well for the cross-country returns of firms following IASB standards. Our results have relevant policy implications that reinforce the convenience of accounting homogenization across countries.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Multinational Financial Management.
Volume (Year): 18 (2008)
Issue (Month): 4 (October)
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Other versions of this item:
- Javier Gomez Biscarri & Germán López Espinosa, . "The influence of differences in accounting standards on empirical pricing models: An application to the Fama-French model," Faculty Working Papers 13/07, School of Economics and Business Administration, University of Navarra.
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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