German listed companies' choice of GAAP

Abstract

German listed firms have been allowed by law some choice of a set of Generally Accepted Accounting Standards (GAAP) in the preparation of their consolidated accounts since 1998. This thesis examines the relationship between non-financial German firms' specific characteristics and their choice of GAAP in the financial year ending 2001 using data obtained from Hoppenstedt's Aktienführer. The study is conducted on firms from two divisions of the Frankfurt Stock Market. The section on the Main Market analyses the GAAP choice of 295 firms between internationally recognized accounting standards (IRAS, which includes International Accounting Standards (IAS or IFRS) and U. S. GAAP) and German GAAP (GGAAP). The analysis of 244 Neuer Markt firms reviews the choice between IAS and U. S. GAAP, as such firms must choose one of the two internationally recognised approaches. Statistical analysis was undertaken at three different levels: univariable, bivariable and multivariable analysis. However, conclusions are based on the results of the multivariable analysis, namely multivariable logistic regression models. Results show that the choice of IRAS by Main Market companies is statistically positively associated with their size, being in a quality segment, having a Big-5 auditor and having foreign managers, but is statistically negatively associated with managers' holding equity. In the Neuer Markt, on the other hand, the choice of U. S. GAAP rather than JAS is statistically positively associated with having a subsidiary in the USA, having a Big-5 auditor, and the presence of U. S. investors, but is significantly negatively associated with leverage and profitability. Furthermore, the choice of U. S. GAAP in the Neuer Markt is also a function of being in specific industry sectors. The choice of U. S. GAAP in the Main Market, on the other hand, is significantly positively associated with having a U. S. listing and marginally positively associated with free float.