Accounting Standards and International Portfolio Holdings

Using country- and institution-level data, we find that the “coming wave” of emerging- market (EM) investors systematically over- or underweight their equity portfolio holdings in a way that reflects the influences of past capital and trade flows from a foreign country. We interpret this finding as support for van Nieuwerburgh and Veldkamp (2009) information endowment hypothesis. Strong past capital and trade flows create an information advantage that leads EM investors to disproportionately overweight a given foreign market, even relative to developed market investor counterparts. We also pursue predictions of the information endowment hypothesis by constructing novel information-advantage proxies based on relationships among investment firms and the headquarters of their parent companies. These proxies also offer reliable explanatory power for international portfolio allocations.

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The Determinants of International Portfolio Holdings and Home Bias

IMF Working Papers ◽

10.5089/9781451845297.001 ◽

2004 ◽

Vol 04 (34) ◽

pp. 1 ◽

Cited By ~ 5

Author(s):

Shujing Li ◽

Hamid Faruqee ◽

Isabel K. Yan ◽

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Keyword(s):

Home Bias ◽

Portfolio Holdings ◽

International Portfolio

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Mandatory IFRS Adoption and the U.S. Home Bias

Accounting Horizons ◽

10.2308/acch-50075 ◽

2011 ◽

Vol 25 (4) ◽

pp. 729-753 ◽

Cited By ~ 50

Author(s):

Inder K. Khurana ◽

Paul N. Michas

Keyword(s):

Fixed Effects ◽

Home Bias ◽

Accounting Standards ◽

Data Availability ◽

Portfolio Holdings ◽

Ifrs Adoption ◽

Stock Portfolios ◽

Country Level ◽

Key Factor ◽

The U.S

SYNOPSIS This paper examines whether mandatory IFRS adoption at the country level lowers U.S. investors' propensity to overweight domestic stocks in their common stock portfolios (generally referred to as home bias). We find that, on average, U.S. home bias decreases for countries that mandate IFRS adoption, after controlling for country-fixed effects. We also find that the reduction in the U.S. home bias after the mandatory adoption of IFRS is greater for countries with larger differences between IFRS and their domestic accounting standards, for countries with a stricter rule of law and a common law legal origin, and in countries with greater incentives to report high-quality financial information. Overall, our results indicate that a common set of global accounting standards matters for portfolio holdings of U.S. investors and that U.S. investors regard the enforcement of standards to be a key factor in making investments outside the U.S. Data Availability: Data are publicly available.

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Financial liberalization and patterns of international portfolio holdings

Empirical Economics ◽

10.1007/s00181-014-0863-1 ◽

2014 ◽

Vol 49 (1) ◽

pp. 213-234 ◽

Cited By ~ 1

Author(s):

Pedro de Araujo ◽

Olena Mykhaylova ◽

James Staveley-O’Carroll

Keyword(s):

Financial Liberalization ◽

Portfolio Holdings ◽

International Portfolio

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Accounting Standards and International Portfolio Holdings

The Accounting Review ◽

10.2308/accr-50801 ◽

2014 ◽

Vol 89 (5) ◽

pp. 1895-1930 ◽

Cited By ~ 58

Author(s):

Gwen Yu ◽

Aida Sijamic Wahid

Keyword(s):

Financial Reporting ◽

Asset Allocation ◽

Accounting Standards ◽

Reporting Standards ◽

Financial Reporting Standards ◽

Portfolio Holdings ◽

Ifrs Adoption ◽

Mandatory Adoption ◽

The Difference ◽

Allocation Decisions

ABSTRACT Do differences in countries' accounting standards affect global investment decisions? We explore this question by examining how accounting distance, the difference in the accounting standards used in the investor's and the investee's countries, affects the asset allocation decisions of global mutual funds. We find that investors tend to underweight investees with greater accounting distance. Using the mandatory adoption of International Financial Reporting Standards (IFRS) as an event that changed the accounting standards of various country-pairs, we examine how two sources of changes in accounting distance—(1) changes due to IFRS adoption of the investee, and (2) changes due to IFRS adoption in the investor's country—affect global portfolio allocation decisions. We find that the tendency to underinvest in investees with greater accounting distance significantly weakens when accounting distance is reduced, either from an investee's IFRS adoption or from IFRS adoption in the investor's country. The latter finding holds despite the fact that IFRS adoption in the investor's country had no impact on the accounting standards under which the investee firms present their financial information; the only change is in the investor's familiarity with these standards. This suggests that differences in accounting standards affect investor demand by imposing greater information-processing costs on those less familiar with the reporting standards.

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