New study explores why foreign firms listed in the U.S. choose between IFRS and U.S. GAAP. The research finds that firms strategically weigh the flexibility of financial reporting and the costs of compliance, rather than following the common standards in their listing jurisdiction. These insights help explain the real motivations behind financial disclosure decisions and offer guidance for regulators and investors alike.
A new study by Dr. Heylel-li Biton of the Hebrew University Business School sheds light on a long-standing question in global finance: Why do foreign firms listed in the United States choose one accounting regime over another?
Published in The International Journal of Accounting, the study investigates the strategic factors that influence U.S.-listed foreign private issuers (FPIs) when choosing between International Financial Reporting Standards (IFRS) and U.S. Generally Accepted Accounting Principles (U.S. GAAP). Unlike previous research, Dr. Biton’s work highlights two underexplored but pivotal considerations: the flexibility of financial reporting and the cost of compliance.
Her findings reveal that many FPIs favor accounting standards that offer more extensive reporting options for key financial statement elements such as assets, liabilities, revenues, and expenses; they specifically avoid U.S. GAAP when significant financial elements are better addressed by the multiple reporting options provided under IFRS. At the same time, U.S. GAAP is often preferred when firms aim to minimize compliance costs, especially before the U.S. Securities and Exchange Commission (SEC) eliminated reconciliation requirements for IFRS filers in 2007.
“This research shows that accounting regime selection is not merely a matter of regulatory compliance,” said Dr. Biton. “It reflects calculated decisions by firms to align their financial reporting with operational goals and cost structures. Understanding these motivations can help regulators and standard-setters build more responsive and effective frameworks.”
The empirical analysis draws on a robust dataset of 811 firms and 1,214 accounting standard choices spanning 1995 to 2015. By introducing a novel scoring method to quantify firms’ preferences for reporting flexibility and incorporating compliance cost data, the study offers a clearer picture of the strategic trade-offs that shape accounting policy at the global level.
The study not only contributes to academic discourse but also provides practical insights for policymakers, investors, and corporate decision-makers navigating an increasingly complex regulatory environment.
The research paper titled “Accounting Regime Selection” is now available in The International Journal of Accounting and can be accessed at https://www.worldscientific.com/doi/10.1142/S1094406025430036.
Researcher:
Heylel-li Biton
Institution:
Hebrew University Business School, The Hebrew University of Jerusalem
For a century, the Hebrew University of Jerusalem has been a beacon for visionary minds who challenge norms and shape the future. Founded by luminaries like Albert Einstein, who entrusted his intellectual legacy to the university, it is dedicated to advancing knowledge, fostering leadership, and promoting diversity. Home to over 23,000 students from 90 countries, the Hebrew University drives much of Israel’s civilian scientific research, with over 11,000 patents and groundbreaking contributions recognized by nine Nobel Prizes, two Turing Awards, and a Fields Medal. Ranked 81st globally by the Shanghai Ranking (2024), it celebrates a century of excellence in research, education, and innovation. To learn more about the university’s academic programs, research, and achievements, visit the official website at http://new.huji.ac.il/en.