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Comparing the Value Relevance of Accounting Information in China: Standards and Factor Effects
Shwu Hsing Wu,
Tainan University of Technology
Meihua Koo, University of Nevada Las Vegas
Tzu - Chuan Kao, Kun Shan University
ABSTRACT. Motivated by the debate about the practicality of International Accounting Standards in transitional economies, and institutional changes in the Chinese emerging capital markets, this paper examines the usefulness of accounting information in the Chinese stock market. Our findings suggest that accounting information based on PRC GAAP and IFRS were significant for explaining A-shares and B-shares stock prices, while IFRS accounting information does not provide additional insights. The explanatory power of earnings and book values for A-shares and B-shares prices has declined over time until 2001 and 2003 respectively. In addition, the increased frequency of negative earnings reports appears to diminish the explanatory power of earnings and book values. We argue that one explanation for the decreased value relevance of IFRS accounting information is that the current Chinese institutional environment does not support the critical use of fair-value accounting estimates and judgments.
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