Mandatory IFRS Adoption and the U.S. Harvard Case Solution & Analysis

Mandatory IFRS Adoption and the U.S.

Home Bias

Summary

The basic intend of this study is to scrutinize the compulsory implementation of the international financial reporting standards throughout the country level that will reduce the tendency of the investors of United States to overweight the domestic stocks in the collection of their common stocks. The home bias of United States decreases for the countries, which actually appreciates the usage of the international financial reporting standards. The findings reflect that there must be the common set of global accounting standards, which actually matters for the holding of the portfolio of the investors from United States and investors consider the enforcement of principles to be a vital factor in actually making the decision of investment outside the country.

In the research it has been found that United States demonstrates a high degree of home bias. Bradshaw came up with a statement that the non-US based companies that are more close to US GAAP faces a tremendous US ownership. The home bias can be reduced by the implementation of the common set of the standards of accounting, which can directly result in the allocation cross border capital in an effective manner. It has also been observed that a decline in the US home bias is not guided by the Europe Union countries. The bias of the United States investors is exaggerated by the compulsory adaptation of the international financial reporting standards. Literature further reflects that since 1970, the presence of the home bias in invertors of equity portfolio has been found by the researchers. Lewis came up with three possible statements that says that balance diversification benefits are due to cost of diversification, to provide the effectual hedge, inability of local securities are required and the possibility for the experiential miss measurement of home bias. One of the most potential hurdles for the foreign investment is the use of diverse accounting standards across the countries. Furthermore, to analyze the proper affiliation between the US home bias and the compulsory adoption, a sample of countries that are using IFRS on mandatory bases and benchmark sample of those countries, which are using generally accepted accounted principal has been taken. Kho compared the US percentage portfolio allocations in the international market in relation with the global market capitalization. To drive the major differences in the local, GAAP and the IFRS uses the country level data. ...........................

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