UBC Theses and Dissertations
The incremental informativeness of Canadian GAAP in the presence of US GAAP McDorman, Lawrence Derek
This study examines the incremental information of Canadian accounting principles when financial information according to US GAAP is known. The impact of SEC-required reconciliations of net income and voluntary disclosures of shareholders' equity reconciliations on share returns and prices are analysed. Based on such analysis, inferences are made about the incremental informativeness of Canadian GAAP. This study follows the concurrent study by Richardson et al. that examines the question of incremental informativeness of Canadian GAAP given the benchmark information provided by US GAAP. This study offers three contributions to this literature. First, it examines the components of reconciliation data and assesses their impact on share returns and prices. Second, it analyzes the effect of exchange rate flucuations on the relationship between reconciliation data and share returns. Third, it analyzes the impact of the dominant trading market on the relationship between reconciliation data and share returns. Unlike Richardson et al., the results of this study suggest that Canadian GAAP offers very limited incremental information when US GAAP financial information is known for Canadian firms that crosslist on the Toronto Stock Exchange and on a US exchange. Convergence of Canadian and US GAAP during the 1993-94 sample period used in this study may partially explain why its results are differenct from the 1983-93 sample period used by Richardson et al. Some components of the reconciliation data were statisticly significant in explaining crosslisted firms' returns (prices). However, exchange rate flucuations, location of dominant market and reporting currenies were not statistically significant in explaining crosslisted firms' returns (prices).
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