Accounting and Stock Markets. A Study of Swedish Accounting for International Investors and Analysts

Abstract

The empirical motivation of this dissertation is the increasing importance and internationalization of stock markets, combined with accounting systems that historically are national in scope. At this time, there is incomplete knowledge of the effects on stock market actors of this recent development. In addition, the relevance of accounting harmonization efforts still underway has not been systematically evaluated. The research aims of the dissertation are: 1) to develop a structure for how accounting is used by stock market actors and empirically test this structure, 2) to develop a research framework for the empirical testing of effects of international accounting diversity, and 3) to empirically examine how and to what extent companies and investors are affected by international accounting diversity. In an attempt to obtain a comprehensive understanding of the research issues, a choice is made to combine several data collection methods, including interviews, document studies, and statistical studies. In all studies, the focus is on Swedish companies as senders of accounting, and non-Swedish investors and analysts as receivers. Findings on how accounting is used by stock market receivers suggest that accounting is used as a basis for forecasts, and that receivers forecast changes from historic accounting information rather than forecasting absolute numbers. This finding enables a conceptual development. Theories about investor behavior often assume uncertainty about the future, but certainty about the present. In practice, however, there is also uncertainty about the present (or recent past), and therefore, accounting is useful even if it only provides historic information. It is also shown that both reporting companies, investors, and analysts are affected by international accounting diversity, a finding which indicates that accounting harmonization efforts are useful. Some impediments to true harmonization are found, however. One impediment is the substantial legal costs facing companies that list on foreign stock markets; costs that will not go away through traditional accounting harmonization. Another problem is differences in underlying views on accounting, which hinder true harmonization.