The influence of differences in accounting standards on empirical pricing models: An application to the Fama-French model

Javier Gómez Biscarri and Germán López-Espinosa ()

No 13/07, Faculty Working Papers from School of Economics and Business Administration, University of Navarra

Abstract: We analyze the effect of cross-country differences in accounting standards on the empirical performance of financial pricing models. We show how the lack of uniform accounting standards across countries generates inconsistent estimates of the model parameters, and leads to rejection of the validity of the model. As an empirical application, we analyze how differences in accounting standards affect the performance of the Fama-French (1993) three-factor pricing model. We show that the F-F model is accounting-specific: it works better the more homogeneous the data are in terms of accounting standards. This result has an important empirical corollary: the model accounts extremely well for the cross-country returns of firms following IASB standards.

Keywords: Accounting systems; international valuation and comparisons; IASB accounting (search for similar items in EconPapers)
JEL-codes: G12 M41 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2007-12-01
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Citations: View citations in EconPapers (2)

Published, Journal of Multinational Financial Management 18:4 (2008), 369-388

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http://www.unav.edu/documents/10174/6546776/1196090342_wp1.pdf (application/pdf)

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Journal Article: The influence of differences in accounting standards on empirical pricing models: An application to the Fama-French model (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:una:unccee:wp1307

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