Accounting Transparency and Foreign Market Entry Mode Choices

ABSTRACT This study documents that U.S. firms are more likely to form joint ventures with local firms than simply acquiring them when entering foreign countries characterized by lower accounting transparency. Cross-sectional analyses further show that our finding is more pronounced for investments made in countries with other information barriers to U.S. investors, such as greater differences in accounting standards and fewer local firms cross-listed on U.S. stock exchanges, and in countries with weaker protections for outside investors. Using the staggered mandatory adoption of International Financial Reporting Standards (IFRS) as a quasi-experiment that exogenously improves country-level accounting transparency, we find that U.S. firms reduce joint venture investments to a greater extent in IFRS-adopting countries than in nonadopting countries. Finally, we show that the market reacts more favorably to joint ventures than to acquisitions when cross-border investments take place in countries with lower accounting transparency. Data Availability: Data are available from the sources cited in the text. JEL Classifications: D23; F23; G30; G32; G34; M41.