We examine the pricing of U.S. multinational firms’ foreign earnings in regard to their risk of expropriation and unfair treatment by the governments of the countries in which their international subsidiaries are located. Using 8,891 firm-years observations during the 2001-2013 period, we find that the value relevance of foreign earnings increases with the improvement of the protection from state expropriation risk in the subsidiary host-countries. Our results are not driven by the earnings management practice, investor distraction, country informativeness, and political and trade relationship of a foreign country with the US. Furthermore, our results are robust to the confounding effects of country factors, measurement error in the variable of the risk of expropriation, influence of private contracting institutions, and endogeneity in the decision of location of subsidiaries.
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Research Article|
April 02 2021
The State Expropriation Risk and the Pricing of Foreign Earnings
Iftekhar Hasan
;
Iftekhar Hasan
Fordham University, University of Sydney, and Bank of Finland
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Ibrahim Siraj
;
Ibrahim Siraj
Long Island University - CW Post Campus
Assistant Professor
Accounting
720 Northern Blvd
UNITED STATES
Brookville
New York
11548
5044939278
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Qiang Wu
Qiang Wu
School of Accounting and FinanceHong Kong Polytechnic University
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Journal of International Accounting Research (2021)
Article history
Received:
January 27 2020
Revision Received:
July 17 2020
Revision Received:
January 06 2021
Revision Received:
March 23 2021
Accepted:
March 30 2021
Citation
Iftekhar Hasan, Ibrahim Siraj, Amine Tarazi, Qiang Wu; The State Expropriation Risk and the Pricing of Foreign Earnings. Journal of International Accounting Research 2021; doi: https://doi.org/10.2308/JIAR-2020-008
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