Accounting Choice, Home Bias, and U.S. Investment in Non-U.S. Firms

• Published in: Journal of accounting research Vol. 42; no. 5; pp. 795 - 841
• Main Authors: BRADSHAW, MARK T., BUSHEE, BRIAN J., MILLER, GREGORY S.
• Format: Journal Article
• Language: English
• Published: Oxford, UK and Boston, USA Blackwell Publishing, Inc 01.12.2004; The Institute of Professional Accounting, Graduate School of Business, University of Chicago; Wiley Blackwell; Blackwell Publishing Ltd
• Series: Journal of Accounting Research
• Subjects: Accounting methods; Accounting procedures; Accounting research; Asset depreciation range system; Bias; Conformity; Control variables; Foreign investment; GAAP; Generally accepted accounting principles; Institutional investments; Investment; Investments; Investors; Ownership; Regression coefficients; Statistical analysis; Statistical median; Studies; U.S.A; Variable coefficients; United States > US
• ISSN: 0021-8456; 1475-679X
• DOI: 10.1111/j.1475-679X.2004.00157.x

This paper examines the relation between accounting choice and U.S. institutional investor ownership in non-U.S. firms. We predict that U.S. investors exhibit home bias in their preference for accounting methods conforming to U.S. Generally Accepted Accounting Principles (GAAP) because such methods are more familiar, reduce information processing costs, and are perceived as higher quality. We find that firms exhibiting higher levels (changes) of U.S. GAAP conformity have greater levels (changes) of U.S. institutional ownership. Lead-lag regressions suggest that increases in U.S. GAAP conformity precede increases in U.S. investment, but changes in U.S. institutional holdings do not precede changes in accounting methods. We also find that the positive relation between U.S. GAAP conformity and U.S. investment holds regardless of a firm's visibility to U.S. investors (e.g., American Depositary Receipt listing, stock index membership, analyst following, firm size). However, we find that U.S. GAAP conformity has a significantly greater impact among firms already visible to U.S. investors.