There are sizeable differences in accounting standards across countries. Accounting regulations in each country may differ, for example, in the speed of earnings and loss recognition, or the accounting and tax treatment of asset revaluation. These differences affect the cross-country comparability of accounting measures such as book values and accounting-based financial ratios.
Traditionally, pricing models that use accounting information to value companies have performed poorly when applied to companies in different countries, relative to those in the same country. They fail to explain clearly the differences in the structure of returns.
Previous research has focused on the unsuitability of the current pricing models on a global scale. However, professors Javier Gómez Biscarri of IESE and Germán López Espinosa of the University of Navarra ask if the differences in the accounting procedures used may have more of an impact on the performance than previously acknowledged.
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