An empirical investigation of the differences in accounting choices between United States-based multinational and domestic corporations

Several recent studies indicate that firms with notable foreign involvement have target leverage ratios significantly below those of their domestic counterparts. If there is evidence of higher target debt ratios for U.S. domestic corporations (DCs) and lower target debt ratios for U.S.-based multinational corporations (MNCs), ceteris paribus, then managers of DCs should have stronger incentives to select income-increasing accounting procedures than those of MNCs based on the debt-equity hypothesis. MNCs also may be expected to use accounting method choices that reduce profits based on the firm-size hypothesis because, in general the size of MNCs is greater than that of DCs.;The results of this study show that U.S. domestic corporations are more likely to choose income-increasing accounting method choices than U.S.-based multinational corporations. Empirical results reported in this study are consistent with the traditional firm-size hypothesis and debt-equity hypothesis which state that there are systematic relations between the choices of accounting procedures and the firm size, and between the choices of accounting procedures and the debt ratio. After the firm size, the debt ratio, and the growth opportunity are controlled, this study still finds that the multinational activity is a significant determinant in explaining accounting procedure choices of firms. Therefore, the important finding of this study is that the multinational activity itself should be another important determinant in explaining firm's choices of accounting procedures beyond the commonly accepted determinants ofaccounting method choices. The growth opportunity is a significant determinant in explaining the choices of depreciation methods and goodwill amortization periods; however, this is not a significant determinant in explaining the choices of income strategy portfolios of firms. Empirical documentation of the systematic differences in accounting method choices between multinational and domestic corporations and the underlying factors that explain these differences can help users of accounting information to assess the usefulness of accounting earnings of MNCs and DCs.;MNCs in general have a higher proportion of future growth opportunities than that of DCs. The main purpose of this dissertation is to empirically investigate whether U.S. domestic corporations are more likely to use income-increasing accounting method choices than U.S.-based multinational corporations. The second objective is to empirically explore the underlying reasons (factors) for the differences in accounting choices between DCs and MNCs. This study focuses on the effects of the debt-equity ratios, the firm size, and the growth opportunities on accounting method choices and introduces measures of multinationality to evaluate the differences in accounting choices between MNCs and DCs. The effects of earnings volatility and earnings level on accounting method choices also are analyzed in exploring the potential underlying factors that might affect the differences in accounting method choices between MNCs and DCs. Three accounting procedure choices are evaluated in this study: inventory cost valuation, depreciation method, and goodwill amortization period. The income strategy portfolio also is examined in this study. It is assumed that a firm chooses an optimal income strategy comprising a portfolio of these three accounting procedure choices.