A comparison of the information content of US and Danish earnings

Thomas Plenborg

European Accounting Review, 1998, vol. 7, issue 1, 41-63

Abstract: This study provides a more in-depth comparison of the information content of US and Danish earnings than has previously been done. Alford et al. (1993) is essentially the only prior study which has compared the information content of US and Danish earnings. They find that US earnings are relatively more informative than Danish earnings. However, the study of Alford et al. (1993) suffers from several deficiencies, which questions the conclusion drawn in their study. This study addresses these deficiencies. First, the sample size is increased from 19 to 121 companies. Further, the comparison is carried out on the basis of operating income, net income and comprehensive income rather than net income alone. By examining these income measures and by concentrating on a comparison of US and Danish earnings alone it is possible to provide explanations for differences in the information content of US and Danish earnings. Finally, this study avoids a size problem by including all Danish listed companies. Given the improvements in the research design and sample size this study finds that Danish earnings seem to be at least as informative as US earnings. In fact, in many cases Danish earnings appear more informative than US earnings. This is the case when both an earnings-return association approach and a perfect foresight portfolio approach are applied.

Date: 1998
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DOI: 10.1080/096381898336574

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