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International Accounting Standards, Institutional Infrastructures, and Costs of Equity Capital around the World
Jeong - Bon Kim, The Hong Kong Polytechnic University
Haina Shi, The Hong Kong Polytechnic University
ABSTRACT. Using a sample of 37,682 firm-year observations from 34 countries over the 1998-2004 period, we compare the cost of equity capital between the International Accounting Standards (IAS) adopters and the non-adopters and investigate whether and how the cost-of-capital effect of IAS adoptions is differentially influenced by the efficacy of a country’s institutional infrastructure. We find that (1) the cost of equity capital is lower for the IAS adopters than for the non-adopters and this result holds irrespective of a country’s institutional infrastructure; (2) the cost of capital decreases with the efficacy of a country’s institutional infrastructure; (3) the cost of capital-reducing effect of IAS adoptions is greater when the IAS adopters are from countries with weak institutional infrastructures. Overall, our results suggest that firms in countries with weak institutional infrastructure benefit more from the IAS adoptions, compared with firms in countries with strong infrastructure.
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