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An analysis of accounting measures on the performance of U.S. international corporations

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  • Gerald Lander
  • Alan Reinstein

Abstract

Accounting measures (earnings and cash flow) have been shown to affect market performance (stock price) in U.S. firms operating domestically. In general, earnings have statistically significant explanatory power of stock price movement, albeit superior to cash flow. However, U.S.-based international corporations consolidate earnings from foreign operations. Consolidation can report significant gains (losses) from foreign transactions, as well as from the translation of foreign assets and liabilities, as currency exchange rates flucturate. Researchers are divided over the impact, if any, that such gains (losses) have on stock price. Indeed, gain (loss) is not realized until foreign currency is converted into the parent firm's functional currency. Foreign operations may accumulate assets and foreign currency even while U.S. exchange rates decline. Stock analysts may consider all currencyadjusted data to be unreliable and prefer simple data such as sales. Currency-adjusted accounting measures may or may not influence market performance. Copyright International Atlantic Economic Society 2001

Suggested Citation

  • Gerald Lander & Alan Reinstein, 2001. "An analysis of accounting measures on the performance of U.S. international corporations," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 7(1), pages 107-113, February.
    • Handle: RePEc:kap:iaecre:v:7:y:2001:i:1:p:107-113:10.1007/bf02296596
    DOI: 10.1007/BF02296596
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