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Title: Does quality of accounting standards improve value-relevance of accounting information in emerging markets? : evidence from China's A-, B-, and H-share markets
Authors: Chen, Kevin C. W.
Wei, John K. C.
Keywords: Accounting standards
China-originated stocks
Accounting information
Quality of accounting information
Issue Date: 2000
Citation: Submit to the APFA conference, 2000, Shanghai, China
Abstract: This paper examines the relationship between the quality of accounting information and its value-relevance using the setting of three different markets of China-originated stocks: A-, B-, and H-shares. All three types of shares are issued by companies in China, but they are traded in different markets and by different participants. A-shares are traded in China's stock markets in Shanghai and Shenzhen by domestic investors, B-shares are traded in the same two markets by foreign investors, and H-shares are traded in Hong Kong. In order to meet the demand of different investors, the three types of companies follow different accounting standards and undergo different auditing processes. A-share companies report financial statements based on the Chinese Accounting Standards (CAS), B-shares on the International Accounting Standards (IAS), and H-shares on the Hong Kong Accounting Standards (HKAS). A-share companies are audited by domestic accounting firms, B-share by international accounting firms in China, and H-share by international accounting firms in Hong Kong.In addition, H-share companies are subject to the disclosure rules in Hong Kong, which are more rigorous than those in China. The differences in accounting standards, auditing processes, and disclosure rules naturally lead one to expect the accounting information of B- and H-share companies to be more value-relevance than that of A-share companies. Surprisingly, this expectation is not supported by the findings in this study. The finding that the accounting information of B-share firms is not more value-relevant than that of A-share firms indicates that the quality of accounting information is not perceived as important by participants in China markets. The similar value-relevance of accounting information between H- and A-share firms could be due to the fact that most of H-share companies are not listed in their domestic market. This creates a wide information gap between management and investors, and reduces investors' confidence in accounting information. In summary, our results point out clearly that the quality of accounting standards and audit firms, and the transparency of disclosure alone are not sufficient to enhance the value-relevance of accounting information is an emerging market like China.
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