Abstract
In 2007, the U.S. Securities and Exchange Commission (SEC) decided to allow foreign private issuers to file financial statements prepared according to International Financial Reporting Standards (IFRS) without reconciliation to U.S. Generally Accepted Accounting Principles (GAAP). Using a sample of foreign private issuers from 35 countries/regions during the period of 2005 to 2008, this article investigates how the elimination of the 20-F reconciliation affects financial analysts. We find that it significantly reduces analyst coverage but has no impact on forecast accuracy. We show that analysts who are greatly affected are more likely to terminate their coverage of IFRS firms after the SEC’s rule than other analysts. In addition, we hypothesize and find that eliminating the 20-F reconciliation has a greater impact on firms whose 20-F reconciliation is more useful to analysts. For these firms, the elimination of the 20-F reconciliation significantly reduces both analyst coverage and forecast accuracy. Overall, our results suggest that the elimination of the 20-F reconciliation imposes costs on financial analysts.
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