The association between financial accounting measures and real economic activity: a multinational study

We investigate how cross-country differences in financial accounting standa rds affect the relation between financial accounting earnings and real econ omic value-relevant events that underlie those earnings. Based on previous research and economic theory we hypothesize that, because of differences in legal systems and the demand for accounting information, differences in le gal protection for external shareholders, and differences in the degree of tax conformity in our sample countries, accounting earnings in the UK and t he US will be more closely related to underlying economic activity than wil l accounting earnings in France and Germany. Empirical results are generall y consistent with our hypothesis. (C) 2000 Elsevier Science B.V. All rights reserved. JEL classification: classification: M41; P51.