A Comparison of the Value-Relevance of U.S. Versus Non-U.S. GAAP Accounting Measures Using Form 20-F Reconciliations

Abstract

Firms registered outside the United States and listed on a primary U.S. exchange may provide their U.S. shareholders with financial statements prepared under their domestic (non-U.S.) generally accepted accounting principles (GAAP). The Securities and Exchange Commission requires such firms to reconcile their reported earnings and shareholders' equity to U.S. GAAP as part of a Form 20-F filing. These reconciliations provide a set of precise measures of the differences created by alternative accounting practices. We use the reconciliations to address two questions. First, are the differences in U.S. and non-U.S. GAAPas summarized in the aggregate reconciliations of earnings and shareholders' equity value-relevant? That is, do the reconciliations of accounting data to U.S. GAAP increase the associations between accounting measures and price (or return)?