The Association between Legal Regime and the Value-Relevance of Accounting Information: A Japan-U.K. Comparison

Publication Type

Journal Article

Publication Date

2003

Abstract

Prior research has shown that there is an association between the legal regime of a firm’s country of domicile and the value-relevance of its accounting information. However, it is still unclear whether it is the difference in the properties of accounting information (the supply effect), or alternatively, if it is the difference in the way the investors in certain jurisdictions interpret and apply that information (the demand effect) that is mainly driving this phenomenon. Since the observed pattern in value-relevance is less likely to be observed in a particular capital market that belongs to a single legal regime (where the demand effect is assumed to be constant) in case the demand effect is mainly driving the association, I test for a marginal impact of the supply effect in a single capital market setting. Using U.S. stock price data, I find that the accounting numbers of U.K. firms, prepared under U.K. GAAP, are more value-relevant than those of Japanese firms, reported under Japanese GAAP. This result lends support to the supply hypothesis and suggests that the legal regime does have a marginal impact on the value-relevance of the accounting information.

Discipline

Accounting | Business Law, Public Responsibility, and Ethics | Finance and Financial Management

Research Areas

Accounting Information System

Publication

Journal of International Accounting, Auditing, and Taxation

Volume

12

Issue

2

First Page

121

Last Page

130

ISSN

1061-9518

Identifier

10.1016/j.intaccaudtax.2003.08.004

Publisher

Elsevier

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