Comparative Value Relevance Among German, U.S. And International Accounting Standards: A German Stock Market Perspective

In recent years, German companies report consolidated financial statements under German GAAP, U.S. GAAP, or International Accounting Standards (IAS). Market observers, researchers, and regulators have argued that financial statements prepared under the shareholder (or investor) model, such as U.S. GAAP or IAS, provide better information than financial statements prepared under the stakeholder model (German GAAP). They further have argued that U.S. GAAP is more rigorously defined and, therefore, provides superior information to IAS. We investigate comparative value relevance, measured as the slope coefficient of the returns/earnings regression. Our results are consistent with expectations. Within our sample of German companies traded on German stock exchanges, value relevance of U.S. GAAP based earnings is higher than that of IAS based earnings, which in turn is more value relevant than earnings produced under German GAAP. A major contribution of this research is that, unlike prior research, we measure stock returns for all sample firms in the German stock market only, and therefore are not reliant on the perhaps strong assumption underlying prior studies of similarity of pricing across markets domiciled in different countries.