The impact of United States GAAP reconciliations of American depository receipts on security analysts' forecast errors

Prior studies have examined the value relevance of the US generally accepted accounting principles (GAAP) reconciliation information of American Depository Receipts (ADRs). Typically, these studies examine the market response to the release of Form 20-F or examine the association between the information contained in Form 20-F and stock prices or market returns. These studies show that information generated by the US GAAP reconciliation is value relevant. Recently, studies include the role of analysts in the examination of ADRs. Fulkerson and Meek (1998) show that analysts may pre-empt the information contained in Form 20-F. Karamanou and Raedy (2001) examine analysts' forecast revisions for ADRs. The results show that US analysts use the US GAAP reconciliation contained in Form 20-F. Hora (1999) examines the volume of analysts' forecasts revisions and finds that analysts tend to revise their forecasts around the filing of Form 20-F with the Securities and Exchange Commission (SEC). However, these studies do not examine the association between the US GAAP reconciliation items in Form 20-F and analysts' behavior.; The purpose of this dissertation is to examine the association between US GAAP reconciliation and analysts' forecasts and forecast errors. Using I/B/E/S and Value Line data, I find that analysts in the United States provide US GAAP-based earnings forecasts for ADRs from twenty countries (forecasts for ADRs from other countries are based on non-US GAAP).; The results show incremental information content of the US GAAP reconciliation items in explaining future US GAAP-based earnings. Further analysis indicates that analysts use the information in the lagged reconciliation items in developing forecasts for US GAAP-based earnings. In addition, the results indicate that analysts may not fully understand that implications of the reconciliation items in developing their forecasts. Since financial analysts provide major information content to security markets, this dissertation may help resolve the debate between the SEC and the New York Stock Exchange (NYSE) concerning the requirement of non-US firms to provide US GAAP reconciliation.