The Information Content of Stock Prices, Legal Environments, and Accounting Standards : International Evidence

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

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Original languageEnglish
Pages (from-to)471-493
Journal / PublicationEuropean Accounting Review
Issue number3
Online published17 Nov 2014
Publication statusPublished - 2015
Externally publishedYes


In this paper, we investigate the impact of accounting standards on the information content of stock prices using a sample of 44 countries from around the world. We find that the adoption of International Financial Reporting Standards or US Generally Accepted Accounting Principles per se does not make stock prices more informative, but that better accounting standards are helpful only in countries having effective legal environments. In particular, we find a significantly negative relationship between stock price synchronicity and the quality of accounting standards in countries with a common-law legal origin and generally better shareholder protection. Our findings are consistent with the theoretical prediction in Zhang [(2013). Accounting standards, cost of capital, resource allocation, and welfare in a large economy. The Accounting Review, 88(4), 1459–1488] that improving accounting standards effectively would increase social welfare in general.