آیا با حذف فرم مصالحه 20-F از IFRS به GAAP ایالات متحده، پیامدهایی برای بازار سرمایه در پی داشته است؟

This paper investigates the capital market consequences of the SEC's decision to eliminate the reconciliation requirement for cross-listed companies following International Financial Reporting Standards (IFRS). We find no evidence that the elimination has a negative impact on firms' market liquidity or probability of informed trading (PIN). We also find no evidence of a significant impact on cost of equity, analyst forecasts, institutional ownership, stock price efficiency and synchronicity. Moreover, IFRS users do not increase disclosure frequency nor supply the reconciliation voluntarily. Our results do not support the argument that eliminating the reconciliation results in information loss or greater information asymmetry.

On November 15, 2007, the Securities and Exchange Commission (SEC) voted to eliminate the requirement for foreign cross-listed firms to provide reconciliation to U.S. Generally Accepted Accounting Principles (GAAP) if they prepare their financial statements in accordance with International Financial Reporting Standards (IFRS).1 The SEC's move is welcomed by the International Accounting Standards Board (IASB), foreign IFRS-reporting firms, and major U.S. stock exchanges (Norris, 2007). The rule change has not been without controversy, however. Perhaps the debate can be best illustrated by the different views expressed by two committees of the American Accounting Association (AAA) in their respective comment letters submitted to the SEC. The AAA's Financial Accounting Standards Committee expresses strong support for the SEC's decision to end the reconciliation requirement (AAA, 2007a). Committee members argue that extant accounting research suggests that both IFRS and U.S. GAAP “meet a minimum quality threshold.” Moreover, they argue there is evidence that financial reports prepared under IFRS are of similar quality relative to those under U.S. GAAP (e.g., Leuz, 2003 and Bartov et al., 2005), thus the elimination is unlikely to lead to a loss of valuable information. In contrast, the Financial Reporting Policy Committee of the Financial Accounting and Reporting Section of the AAA considers the elimination of the reconciliation requirement “premature” (AAA, 2007b). Committee members argue that there are substantial differences between U.S. GAAP and IFRS, as reflected in the reconciliation items, and that the reconciliation provides value-relevant information to investors (e.g., Harris and Muller, 1999, Chen and Sami, 2008, Henry et al., 2009 and Gordon et al., 2009). Thus, valuable information will be lost as a result of the rule change to end the reconciliation requirement. Moreover, the quality of financial information depends not only on accounting standards, but also on implementation of standards and enforcement mechanisms (e.g., Ball, 2001 and Ball et al., 2003). Even if IFRS constitute a set of high-quality standards, the resulting financial reports could be of low quality because of inconsistent implementation and enforcement practices in different countries. In this study, we attempt to provide evidence on the capital market impact of eliminating the reconciliation to U.S. GAAP for cross-listed foreign companies following IFRS. Specifically, we examine the effects of eliminating the reconciliation on stock market liquidity and the probability of informed trading (PIN). If reconciliation information is rarely used by investors, and investors do not perceive cross-listed firms' accounting numbers based on IFRS to be of inferior quality relative to those based on U.S. GAAP, then eliminating the reconciliation is unlikely to have a negative impact on the liquidity and PIN of foreign cross-listed firms. Supportive of this view, some studies suggest that the usefulness of the reconciliation has declined or may even diminish by 2006 due to the increased convergence between IFRS and U.S. GAAP and the improvements of IFRS in recent years (e.g., Plumlee and Plumlee, 2007, Chen and Sami, 2010 and Jiang et al., 2010). Many practitioners also consider reconciliation an unnecessary and expensive practice (Edwards, 1993 and Dzinkowski, 2007).2 If, however, eliminating the reconciliation results in a loss of useful information to investors and increases information asymmetries among investors of foreign issuers' stocks, then we would expect a decrease in market liquidity and an increase in PIN, after companies stop providing the reconciliation. In addition, eliminating the reconciliation may reduce the comparability of financial statements issued by foreign cross-listed and U.S. domestic companies. This may discourage U.S. investors from trading IFRS-reporting firms' shares cross-listed in the U.S. If so, these firms' market liquidity and PIN would also suffer. Our sample of IFRS firms consists of 78 foreign firms that are cross-listed in the U.S. and prepare their financial statements using IFRS in 2006 and 2007, with 2006 (2007) being the pre- (post-) elimination year.3 Our control sample consists of 162 U.S. cross-listed firms that do not use IFRS. We use a difference-in-differences design by comparing changes in market liquidity and PIN for IFRS firms before and after the elimination, relative to the corresponding changes for control firms. We find no evidence that eliminating the reconciliation has a significant impact on liquidity as measured by zero returns, price impact, bid-ask spread, and trading costs. We also find no evidence that IFRS firms experience a significant change in PIN after the elimination. Overall, our evidence does not suggest that eliminating the Form 20-F reconciliation has significantly negative capital market consequences. We conduct a battery of sensitivity tests and find that our results are robust. We next investigate the cross-sectional variation of the effects of eliminating the 20-F reconciliation. We partition the sample based on: (1) the magnitude of the absolute difference between IFRS and U.S. GAAP earnings prior to the elimination, a proxy for the degree of potential information loss resulting from the elimination; and (2) institutional ownership, a proxy for investor sophistication. We continue to find no significant impact of the elimination on liquidity and PIN across different partitions of the sample. In addition to market liquidity and PIN, we also explore other potential consequences of the elimination of the 20-F reconciliation. We investigate and find no evidence that the elimination has a significant impact on the cost of equity, analysts' forecast error, bias, and dispersion, institutional ownership, and stock price efficiency and synchronicity. While our main analysis focuses on how the users of the reconciliation (i.e., investors) respond to the elimination, we also investigate whether the preparers of the reconciliation (i.e., cross-listed IFRS users) respond to the elimination by changing their voluntary disclosures. We find that none of the IFRS firms continue to provide the reconciliation in Form 20-Fs after the elimination. In addition, we examine these firms' press releases, and find that they do not change the frequency of voluntary disclosures after the elimination. Our findings are consistent with firms not perceiving the elimination of the reconciliation to have a detrimental impact, and consequently not taking actions to change their voluntary disclosure strategies. The findings also provide support that our primary result (i.e., no change in liquidity and PIN after the elimination) is not driven by firms' increasing other disclosures to substitute for potential information loss from not disclosing the 20-F reconciliation. Our results are consistent with Leuz (2003) that finds no significant difference in bid-ask spread and share turnover between IFRS and U.S. GAAP reporting firms trading in Germany's New Market. On the other hand, our results do not lend support to the information loss argument. Harris and Muller (1999) show that the IFRS-to-U.S.-GAAP reconciliation is value-relevant; Henry et al. (2009) and Gordon et al. (2009) find similar evidence in 2005 and 2006, implying that eliminating the reconciliation requirement may lead to information loss (AAA, 2007b). However, while these studies find an association between 20-F reconciliation and stock returns, they do not provide direct evidence on whether investors use the reconciliation information ( Kothari, 2001 and Holthausen and Watts, 2001). Trading-volume studies provide more direct evidence. Chen and Sami (2008) find significant abnormal volume reactions to the reconciliation from 1995–2004, and Chen and Sami (2010) continue to find evidence in 2005–2006. In contrast, Plumlee and Plumlee (2007) find no evidence of abnormal volume reactions to 20-F filings from 2002 to 2006. Jiang et al. (2010) also find no evidence of volume reactions in 2005–2006. Unlike prior studies, we investigate the effect of eliminating the reconciliation on the information environment of cross-listed firms, utilizing a unique regulatory event. Our study provides new insight on the usefulness of the reconciliation to U.S. investors. Our finding is consistent with two possible interpretations. If information quality is mainly determined by accounting standards, then our finding implies that U.S. investors consider the two sets of standards – IFRS and U.S. GAAP – to have similar quality. Our evidence is also consistent with the view that the key drivers of accounting quality are firms' reporting incentives shaped by economic forces and institutional factors, rather than by accounting standards (Ball, 2001, Ball et al., 2000, Ball et al., 2003, Leuz et al., 2003 and Burgstahler et al., 2006). Under this view, our finding suggests that, holding reporting firms and market forces constant, U.S. investors perceive accounting numbers based on IFRS and U.S. GAAP to have similar quality even if there are differences between the two sets of standards.4 Our paper makes several contributions to the literature. Our study is one of the first to investigate the economic consequences of the SEC's decision to end the reconciliation requirement for foreign cross-listed companies using IFRS. As discussed above, there is a debate on whether the SEC's rule change is premature. Our evidence does not suggest that the SEC's decision to end the reconciliation requirement leads to increased information asymmetry in the equity market. Second, the decision to eliminate the IFRS to U.S. GAAP reconciliation is an important development and signals a major step towards the ultimate adoption of IFRS in the U.S. We provide timely empirical evidence on how U.S. investors perceive accounting information based on IFRS without reconciliation to U.S. GAAP. Our results suggest U.S. investors do not consider cross-listed firms' financial information based on IFRS to be of inferior quality relative to that based on U.S. GAAP, either because they view the two sets of standards to have similar quality, or because they believe that, holding firms' reporting incentives constant, differences between IFRS and U.S. GAAP have a minimal impact on the quality of accounting information. The evidence of our paper will be of interest to accounting and security regulators. Third, our paper adds to the literature on the economic consequences of disclosures. Most, if not all, prior research on disclosures investigates the impact of increased disclosures and generally finds that increased disclosures lead to improved market liquidity and a lower cost of capital (e.g., Botosan, 1997 and Leuz and Verrecchia, 2000). In contrast, we examine the impact of decreased disclosures. Our results suggest that for cross-listed firms that follow IFRS, “more” is not always better. Finally, our findings will be of interest to current cross-listed firms as well as firms that might decide to pursue U.S. cross-listing in the future. Prior research suggests increased disclosures as an important source of benefits from a U.S. cross-listing (e.g., Doidge et al., 2004, Doidge et al., 2009 and Hail and Leuz, 2009). The reconciliation requirement is a key element of the U.S. disclosure standards for cross-listed firms (Edwards, 1993 and Fanto and Karmel, 1997). Removing the reconciliation will reduce the information preparation costs, but may also reduce the benefits from cross-listing. We shed light on this issue by examining the impact of the elimination on the benefits of cross-listing as reflected in liquidity and information asymmetry, and find no evidence of a negative impact. We discuss background information and prior research in Section 2. Section 3 discusses the research design. Section 4 describes the sample and descriptive statistics. Empirical results are reported in Section 5. We present additional analyses in 6 and 7, and sensitivity tests in Section 8. We conclude in Section 9.

This study examines the capital market effects of the SEC's recent rule change to eliminate the 20-F reconciliation requirement for U.S. cross-listed firms following IFRS. Specifically, we investigate the effects of the elimination on stock market liquidity and the probability of informed trading (PIN). We find no evidence that IFRS-reporting firms experience a significant change in market liquidity (as measured by zero returns, price impact, bid-ask spread, and trading costs) and PIN in the year after the elimination, relative to a control group of cross-listed firms that do not use IFRS. We explore other potential consequences of eliminating the 20-F reconciliation and find no evidence that the elimination has a significant impact on cost of equity, analysts' forecast error, bias and dispersion, institutional ownership, and stock price efficiency and synchronicity. While our main analysis focuses on the capital market consequences of eliminating the reconciliation requirement, we also provide evidence on firms' responses to the elimination. We find that none of the IFRS users continue to provide the reconciliation in Form 20-Fs voluntarily after the elimination. Moreover, we compare the number of press releases before and after the elimination and find that IFRS firms do not increase their disclosure frequency after the elimination. To address the concern on whether our tests have sufficient statistical power given the relatively small sample size, we conduct power analysis and find that our regressions do not suffer from significant Type II errors. In addition, finding results that are consistent across different measures and robust to different model specifications increases the confidence that our results are not caused by variable mis-measurement or model mis-specifiatoin. Specifically, we find consistent results across four different measures of liquidity and PIN along with PIN parameters. Additional analyses of more than 10 measures of other capital market consequences also yield consistent results. To ensure a correct model specification, we employ a difference-in-differences design, using cross-listed non-IFRS-reporting firms to control for contemporaneous changes in capital markets that may coincide with the SEC's decision to end the reconciliation requirement. Our results are robust to alternative control samples. We also include an extensive list of control variables in our regression models to mitigate the concern of the correlated omitted variables problem. Taken together, we find no evidence that eliminating the IFRS to U.S. GAAP reconciliation has a negative capital market impact on IFRS-reporting cross-listed firms. The findings of our paper will be of interest to accounting and security regulators. Our results are inconsistent with the argument that the SEC's decision to end the reconciliation requirement results in information loss or greater information asymmetry. Our results suggest that U.S. investors do not perceive cross-listed firms' accounting information based on IFRS to be of inferior quality relative to that based on U.S. GAAP, either because they view the two sets of standards to have similar quality, or because they believe that, holding firms' reporting incentives constant, differences between IFRS and U.S. GAAP have a minimal impact on the quality of accounting information. Current and potential U.S. cross-listed firms will also find our evidence useful in their analysis of the costs and benefits of listing their securities in the U.S. capital markets.