Effects of Accounting Standard Choice on Analyst Forecast Behavior Evidence From Cross-Listed Firms in the United States

Abstract

In this study, we examine whether the choice between International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principles (US GAAP) affects financial analysts’ forecast behavior as reflected in the coverage, accuracy, and dispersion of earnings forecasts. Based on a hand-collected dataset from SEC filings (Form 20-F or 40-F) and a sample of 408 unique cross-listed firms (1,699 firm-year observations) from 2005 to 2015, our findings indicate that both analyst location and home-country institutional characteristics are important factors in affecting the association between the choice of IFRS versus US GAAP and analyst behavior in the US market. Specifically, for the US-based analysts, we have no evidence of significant differences in analyst coverage, forecast accuracy, or forecast dispersion between IFRS and US GAAP users. Within the group of non-US analysts, however, IFRS users tend to attract fewer analysts and have more accurate earnings forecasts. Additionally, for firms from countries with strong enforcement regimes, IFRS users are associated with lower analyst coverage and greater forecast accuracy. These effects, however, do not exist for firms from weak enforcement countries. This study contributes to the literature on IFRS and cross-listing by offering insights into the role of accounting standards in shaping analyst forecast behavior. Our findings are relevant to policymakers, standard setters, and financial analysts, highlighting the broader implications of accounting standard choices on market participants.