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Familiarity, home bias and investors’ reactions to 20-F reconciliation gains and losses and perceptions of the quality of accounting principles

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  • Maroney, James J.
  • McGarry, Clodagh
  • Ó hÓgartaigh, Ciarán

Abstract

This paper examines whether financial statements based on home GAAP (Generally Accepted Accounting Principles) (Irish GAAP), versus non-home GAAP (US GAAP), have differential effects on Irish investors’ financial assessments of a firm. The paper also extends Maroney and Ó hÓgartaigh's (2005) study by investigating whether perceptions of US GAAP and Irish GAAP financial statements and the gains and losses represented in 20-F reconciliations differ between non-US (Irish) and US users of financial statements. The paper adopts an experimental method involving 105 non-US (Irish) participants and 49 US participants. The current study provides evidence that non-US investors react very differently to reconciliation gains and losses than do US investors. In fact, the non-US investors react conversely to US investors in that they perceive the risk of firms filing 20-F reconciliations with reconciliation losses to be lower, and the quality of accounting principles higher, than firms filing 20-F reconciliations with reconciliation gains. Our study also finds that the non-US participants were more confident in making their quality assessment for the home GAAP (Irish GAAP) financial statements than for the non-home GAAP (US GAAP) financial statements. However, despite this difference in confidence level, the financial assessments of the firm preparing home GAAP (Irish GAAP) financial statements versus non-home GAAP (US GAAP) financial statements were not significantly higher. Together, these results help to shed light on the cause of what has been termed a ‘home bias’ phenomenon, whereby domestic investors exhibit a strong preference for domestic versus foreign markets suggesting in particular that ‘home bias’ derives in part from an increased confidence in ‘home GAAP’.

Suggested Citation

  • Maroney, James J. & McGarry, Clodagh & Ó hÓgartaigh, Ciarán, 2008. "Familiarity, home bias and investors’ reactions to 20-F reconciliation gains and losses and perceptions of the quality of accounting principles," The British Accounting Review, Elsevier, vol. 40(2), pages 103-122.
    • Handle: RePEc:eee:bracre:v:40:y:2008:i:2:p:103-122
    DOI: 10.1016/j.bar.2008.01.001
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    3. McEnroe, John E. & Sullivan, Mark, 2011. "Individual investors’ attitudes toward the acceptance of International Financial Reporting Standards in the United States," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 20(1), pages 20-31.
    4. Lueg, Rainer & Punda, Pawel & Burkert, Michael, 2014. "Does transition to IFRS substantially affect key financial ratios in shareholder-oriented common law regimes? Evidence from the UK," Advances in accounting, Elsevier, vol. 30(1), pages 241-250.
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