By: Ann Tarca, Melissa Moy and Richard D. Morris

This study examines the relationship between use of international accounting standards and companies’ source of finance. We Investigate the proposition contained in Nobes’ (1998) model which postulates ousider companies (those with a higher level of public finance) in weak equity-outsider markets (capital markets where public equity finance is not dominant source of finance) are more likely to change their type of accounting system from one focused on information for creditors and tax authorities to one that meets the needs of external financiers. We considered 176 German listed companies during the financial year 1999. Our result support Nobes’ (1998) model as we found companies with more ousider finance (represented by the proportion of shares held by outsiders and the amount of public debt) were more likely to use international standards (US GAAP or IAS). Considering companies’ choice of US GAAP or IAS, we found companies selecting US GAAP rather than IAS were more likely to have a higher level of outsider finance.

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by: Mingyi Hung and K.R. Subramanyam

This study investigates the effects of adopting International Accounting Standards (IAS) on financial statements and their value relevance for a sample of German firms during 1998 – 2002. By implementing an innovative research design we compare accounting numbers reported under German accounting rules (HGB) with those under IAS for the same set of firm-years, and document how IAS adoption changes key financial measures and the value relevance of financial statement information. While HGB is stakeholder-oriented and commonly viewed as a historical cost accounting model that emphasizes income smoothing, IAS is shareholder-oriented and generaly percieved as a fair-value accounting model that emphasizes balance sheet valuation. Consistent with these perceptions, we find that total assets and bok value of equity, as well as variablity of book value and net income, are significantly higher under IAS than HGB. In addition, we find that book value (net income) plays a greater (lesser) valuation role under IAS than under HGB. Finally, we find that while the IAS adjustments to book value are generally value relevant, the adjustments to income are generally value irrelevant. Our evidance provides new insights into the accounting differences between stakeholder-oriented and shareholder-oriented accounting systems and sheds light on the financial statement and valuation implications of adopting IAS in stakeholder-oriented economies, an issue that particularly important in the upcoming adoption of IAS by the European Community.

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