Value Relevance Of Accounting Information In Emerging Economies

Over the last two decades China has been working on marking a global economic impact.In pursuing this they have encourage their firms to participate in globalization and one of the most important moves these companies have taken is to cross list in other stock markets including the Hong Kong Stock exchange,Singapore stock exchange and the US stock markets.This is a move seen not only to bring prestige but to help companies in building their capital base so as to enhance their competitiveness as well as to increase their liquidity.Both state owned and private firms have been choosing different stock markets and one of the most important one is the US stock markets.Currently,Chinese companies are the highest in terms of number of cross listed companies from a single country on the US stock markets.On the other hand the government through the Ministry of Finance has been working for the past years to improve to financial reporting of these companies to enhance the credibility of the information they present to investors.In this study we focus on evaluating the value relevance of the information presented in the financial statements of firms listed on the US stock market using the data from this cross listing market.Using a sample size of 52 Chinese companies we that use the US GAAP in their financial reports we applied the Ohlson model to find out the value relevance of their reports.We find that information prepared using US GAAP by the Chinese companies that converge with US reporting standards as they comply with host country accounting system to be value relevant.We modified this model to accommodate operating cash flows and ownership type which we find to be significantly related to the market price of shares.Further tests were made for different Chinese companies sorted by industries as listed on the US stock market and we found that different industries value different information when making investment decisions.The results confirm that when Chinese firms cross listed in the US adhere to the US GAAP and SEC requirement they produce information which is value relevant.This study is of importance to managers of companies as they look at how the disclose their information.Secondly,it will guide investors on the most important factors that have been reflecting on the stock market.As standard setters move towards convergence it is important to consider what is relevant in the US market or to US investors from Chinese companies as China moves towards being a global economy powerhouse.The interdependence of economies as globalization creates a need to always evaluate firms incorporated in one country but listed in another.The interdependence of these economies through investments in their companies is has been greatly seen through the global financial crisis of 2008 where the whole world was greatly affected by the failure of the US stock markets.This study therefore helps China as a developing country with a high number of firms listed in the US to know the relevance of the information they present in their financial statements.