International accounting harmonization and global equity markets

We show harmonizing domestic GAAP with foreign GAAP can have deleterious ef fects on security market performance, specifically price informativeness an d trading volume. Harmonization effects result from interaction between two forces. Direct informational effects depend on whether harmonization incre ases or decreases GAAP precision. Expertise acquisition effects depend on b enefits and costs to foreign investors of becoming domestic GAAP experts. T hese countervailing forces can result in harmonization to more (less) preci se GAAP increasing (decreasing) or, unexpectedly, decreasing (increasing) p rice informativeness and trading volume. We also observe this for a cost of capital metric. Thus, harmonization is not necessarily a desirable singula r goal. (C) 1999 Elsevier Science B.V. All rights reserved, JEL classificat ion: D82; G15; M41.