Abstract

This study analyzes the relationship between international diversification and financial statement comparability, and studies the impact of the adoption of K－IFRS on that relationship. International diversification is measured by the proportion of foreign assets and the proportion of foreign sales, and the comparability of financial statements is based on a measure derived from the relationship between stock returns and earnings introduced in De Franco et al.(2011). By using Korean firms listed on KOSPI and KOSDAQ from 2003 to 2015, we find that the level of international diversification is negatively correlated with comparability of financial statements. In other words, it can be interpreted that as the level of international diversification increases, the comparability of financial statements is deteriorating. We also find that the adoption of K－IFRS has positive effect on the relationship between international diversification and financial statement comparability. This is due to the K－IFRS’ effect improving financial statement comparability through the improvement of accounting uniformity and financial reporting quality, and it is interpreted that the adoption of K－IFRS alleviates the loss of comparability of financial statements due to international diversification. The contribution of this study is as follow. Prior research on the relationship between the international diversification and the financial reporting quality have mainly used accrual－based or real earnings management as a proxy for financial reporting quality. However, this study is contributing to the expansion of research on international diversification by presenting the empirical evidence of the impact of international diversification on corporate environment using financial statement comparability as a proxy for the quality of accounting information. Moreover, the financial statement comparability is one of the determinants of accounting information quality emphasized by the FASB’s conceptual framework. Therefore, it seems to be meaningful that this study analyzed the effect of international diversification, which is being accelerated by industrial development, on the financial statement comparability.

Keywords

• K－IFRS
• International Diversification
• Financial Statement Comparability

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