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An International Meeting of American Accounting
Association
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Home Bias, Foreign Mutual Fund Holdings, and the Voluntary Adoption of International Accounting Standards |
Vicentiu M. Covrig
California State University - Northridge
Mark L. Defond
University of Southern California
Mingyi Hung
University of Southern California
Abstract: We test the assertion that a consequence of voluntarily adopting International Accounting Standards (IAS) is the enhanced ability to attract foreign capital. Using a unique database that reports firm-level holdings of over 25,000 mutual funds from around the world, our multivariate tests find that average foreign mutual fund ownership is significantly higher among IAS adopters. We also find evidence that increased disclosure levels, but not greater familiarity with the accounting standards, explain why foreign mutual funds invest more heavily in IAS adopters. In addition, we find that IAS adopters in poor information environments and with low visibility have relatively higher levels of foreign investment, consistent with these firms using IAS adoption as a mechanism for increasing disclosure in order to attract foreign investors. Our findings are consistent with voluntary IAS adoption reducing home bias among foreign investors and thereby improving capital allocation efficiency.