Accounting standards and value relevance of financial statements: An international analysis

Using 17,743 firm-year observations of industrial companies in 21 countries from 1991 to 1997, this paper finds that the use of accrual accounting (ve rsus cash accounting) negatively affects the value relevance of financial s tatements in countries with weak shareholder protection. This negative effe ct, however, does not exist in countries with strong shareholder protection . These findings are consistent with the belief that shareholder protection improves the effectiveness of accrual accounting, and suggest the importan ce of considering shareholder protection when formulating accounting polici es related to accruals. (C) 2001 Elsevier Science B.V. All rights reserved.