Sidney J. Gray

Modeling the conditional distribution of interest rates as a regime-switching process

This paper develops a generalized regime-switching (GRS) model of the short-term interest rate. The model allows the short rate to exhibit both mean reversion and conditional heteroskedasticity and nests the popular generalized autoregressive conditional heteroskedasticity (GARCH) and square root process specifications. Thus, the conditional variance process accommodates volatility clustering and dependence on the level of the interest rate. Switching between regimes is governed by a first-order Markov process with state-dependent transition probabilities. The GRS model is compared with various existing models of the short rate in terms of the statistical fit of short-term interest rate data and in terms of out-of-sample forecasting performance.

Ownership structure and corporate voluntary disclosure in Hong Kong and Singapore

Abstract Drawing on prior empirical research based on disclosure behavior in developed western markets, this study examines the association of ownership structure with the voluntary disclosures of listed companies in the Asian settings of Hong Kong and Singapore. An analysis of annual reporting practices shows that the extent of outside ownership is positively associated with voluntary disclosures. In particular, the results also indicate that the level of information disclosure is likely to be less in “insider” or family-controlled companies, a significant feature of the Hong Kong and Singapore stock markets.

Factors Influencing the Extent of Corporate Compliance with International Accounting Standards: Summary of a Research Monograph

Abstract This report provides a summary of a research monograph sponsored by the ACCA (2001). The objective of the research is to examine the financial statements and footnotes of a worldwide sample of companies referring to the use of International Accounting Standards (IAS) to assess the extent of compliance and most importantly to provide evidence of the factors associated with compliance. The major findings are that there is a significant extent of non-compliance with IAS, especially in the case of IAS disclosure requirements. Further, as regards factors associated with compliance with IAS disclosure requirements, there is a significant positive association with a U.S. listing/filing and/or non-regional listing, being in the commerce and transportation industry, referring exclusively to the use of IAS, being audited by a Big 5+2 firm, and being domiciled in China or Switzerland. Additionally, there is a significant negative association with being domiciled in France, Germany, or other Western European countries. As regards compliance with IAS measurement and presentation standards, there is a significant positive association with exclusive reference to the use of IAS, being audited by a Big 5+2 firm, and being domiciled in China. Additionally, there is a significant negative association with being domiciled in France or Africa.

Regime switching in foreign exchange rates: Evidence from currency option prices

This paper examines the ability of regime-switching models to capture the dynamics of foreign exchange rates. First we test the ability of the models to fit foreign exchange rate data in-sample and forecast variance out-of-sample. A regime-switching model with independent shifts in mean and variance exhibits a closer fit and more accurate variance forecasts than a range of other models. Next we use exchange-traded currency options to determine whether market prices reflect regime-switching information. We find that observed option prices are significantly different from their theoretical levels determined by a regime-switching option valuation model and that a simulated trading strategy based on regime-switching option valuation generates higher profits than standard single-regime alternatives. Overall, the results indicate that observed option prices do not fully reflect regime-switching information.

Acceptance and Observance of International Accounting Standards: An Empirical Study of Companies Claiming to Comply with IASs

Abstract This article reports on an empirical study of the accounting policies and disclosures of a sample of major companies from around the world claiming to comply with IASs in 1996. Specifically, the research addresses the extent of compliance with the IASs revised during the Comparability Project. The findings reveal significant noncompliance with IASs including: use of LCM for inventories; violation of the all-inclusive requirement for reporting profit/loss and of the strict definition of extraordinary items; failure to capitalize certain development costs; failure to provide all required disclosures for property, plant, and equipment, particularly those associated with revaluations; failure to comply with pension disclosure requirements; for companies operating in hyperinflationary economies, failure to restate foreign entities in accordance with IAS 29; and charging goodwill to reserves or amortizing goodwill over a period in excess of the 20 year limit. Noncompliance, as evidenced by the current research, is very problematic for the IASC as it strives to achieve an IOSCO endorsement and as IAS I Revised becomes effective for 1999 financial statements.

The impact of international accounting differences from a security-analysis perspective: some European evidence

Publisher Summary This chapter discusses the impact of international accounting differences from a security analysis perspective. In the European context, a candidate with some potential for this task can be found in the standardized method of analysis and presentation of company accounts developed by the European Federation of Financial Analysts Societies. This European Method of financial analysis is the outcome of a project for the special purpose of overcoming the problems of making international comparisons of company performance. The essential aim of the European Method is to arrive at a figure that can be used as a basis for earnings forecasts and for the calculation of ratios. As a consequence, several adjustments are made to a companys reported profits in an attempt to eliminate subjective and nonrecurring elements, and so reveal a relatively objective measure of current profits attributable to ordinary shareholders on a standardized basis.

EC Accounting Harmonisation: An Empirical Study of Measurement Practices in France, Germany and the UK

Abstract This research attempts to assess the extent to which accounting measurement practices in France, Germany and the UK are currently harmonised in the context of the major effort that has been made to promote EC accounting harmonisation. The statistical tests show that there are significant differences between France, Germany and the UK in respect of all the practices evaluated. Furthermore, the I-indices used to measure the overall level of international accounting harmony across the three countries indicate a wide and relatively low range of values.

The Impact of Culture on Accounting Disclosures: Some International Evidence

ABSTRACT This paper reports on the results of empirical tests of the relationship between culture and accounting disclosures in an international context. Using a comprehensive data base of disclosure practices covering 27 countries, and applying linear regression analysis, the results support the hypothesis proposed by Gray (1988) that secrecy and its impact on disclosure behaviour is a function of the cultural (societal) values identified by Hofstede (1980). However, it was found that this relationship was more significant in respect of the values of “uncertainty avoidance” and “individualism” as compared to those of “power distance” and “masculinity”.

Accounting Reforms in China: Cultural Constraints on Implementation and Development

Abstract There is considerable theory and evidence to suggest that culture is an important environmental variable influencing the development of accounting systems internationally. According to the Hofstede (1980) and Gray (1988) cultural models, Chinas accounting development and practice should be in the cluster that supports statutory control, uniform practices, a conservative measurement approach and secrecy in disclosure. A uniform and rigid system of financial reporting has been practised for decades in the Peoples Republic of China under the centrally controlled economy. The accounting reforms launched since the 1980s aim to establish a new framework for regulating financial reporting which is adaptable to Chinas recently emerged socialist market economy. The adoption of accounting standards in the later phases of the reforms marks a dramatic turning point in Chinas accounting history towards a more international Anglo-Saxon orientation in financial reporting. Based on an analysis of the authori...

Assessing the Acceptability of International Accounting Standards in the US: An Empirical Study of the Materiality of US GAAP Reconciliations by Non-US Companies Complying with IASC Standards

Abstract With the International Accounting Standards Committee (IASC) reaching the completion of its core standards program, the International Organization of Securities Commissions (IOSCO) is considering its response to the IASCs application for endorsement of International Accounting Standards (IASs). A critical aspect of IOSCOs acceptance of IASs is likely to be the extent to which such standards are compatible with US Generally Accepted Accounting Principles (US GAAP). This issue is explored by an empirical study of US GAAP reconciliations by non-US companies complying with IASC standards. The results indicate that the impact of accounting differences between IASs and US GAAP is narrowing and suggest that the Securities Exchange Commission (SEC) should consider accepting IASC standards without condition. Alternatively, an SEC endorsement could include a short list of IASs where acceptance is subject to additional disclosures.