HARMONIZATION OF INTERNATIONAL ACCOUNTING STANDARDS: AN EMPIRICAL ANALYSIS OF JAPANESE FIRMS

This study examines the market's responsiveness to the earnings announcements of Japanese firms that use U.S. GAAP compared to Japanese GAAP by investigating earnings response coefficients. The empirical results show similar earnings response coefficients for U.S. GAAP firms compared to those of Japanese GAAP firms. The results suggest that investors' perceptions of the quality of a firm's external reporting system that uses U.S. GAAP have similar earnings' noise as when a firm uses Japanese GAAP. If this is the case, the findings of this study suggest that the SEC should not require foreign registrants to use U.S. GAAP to list in the U.S. stock market because there are no incremental benefits other than reduced noise and there are significant translation costs. Instead, the SEC should support harmonization of international accounting standards.