The Impact of Elimination of the Reconciliation Requirement on Home Bias

• In Event: Concurrent Session 4.1: Financial Reporting and Disclosures

Abstract

We explore the suggestion that informational barriers impact institutional investment in foreign firms by assessing whether changes in the information environment are associated with increases or decreases in Home Bias (the allocation of a higher percentage of investment capital to domestic rather than to foreign firms). We find that the elimination of the 20-F requirement to reconcile IFRS financial disclosures to U.S. GAAP was associated with increased Home Bias and particularly so for U.S. investors. This result is robust for tests of cross-listed (non cross-listed), UK (non-UK), firm-level controls, country controls, financial controls and alternative measures of home bias. Our results indicate that the elimination of the 20-F reconciliation was associated with a loss of valuable investment information.

Authors

• Elizabeth Hendrix Turner, Florida International University

• Clark M Wheatley, Florida International University