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 the more homogeneous the data are 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.
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Bibliographic InfoPaper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number 13/07.
Length: 52 pages
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Publication status: Published, Journal of Multinational Financial Management 18:4 (2008), 369-388
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Web page: http://www.unav.es/facultad/econom
Accounting systems; international valuation and comparisons; IASB accounting;
Other versions of this item:
- Gomez Biscarri, Javier & Lopez Espinosa, German, 2008. "The influence of differences in accounting standards on empirical pricing models: An application to the Fama-French model," Journal of Multinational Financial Management, Elsevier, vol. 18(4), pages 369-388, October.
- 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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