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Fund Accounting
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4/29/2008
Adopt International Accounting Standards To Attract Foreign Investors
Many proponents believe that using International Accounting Standards (IAS) would be a magnet for drawing foreign investors. The rationale? Voluntarily adopting IAS reassures foreign investors and reduces their home bias by providing useful information. Taking foreign mutual funds as a surrogate for foreign investors generally, three professors analyzed data from some 25,000 mutual funds. Vicentiu Covrig, Mark Defond, and Mingyi Hung find higher levels of foreign MF ownership for companies that use IAS than for those using local accounting standards. An issuer's voluntary adoption of IAS is most appealing to the foreign funds when the company operates in a poor information setting (i.e., with few analysts) and with low visibility (i.e., does not appear in prominent local or international indexes).
