Harmonized Accounting Standards and Investment Beauty Contests

Xu Jiang, Chao Tang, Gaoqing Zhang

Research output: Contribution to journalReview articlepeer-review


We study the economic impacts of adopting harmonized accounting standards when firms’ investments exhibit beauty contest features. We model harmonized accounting standards as common/correlated noises in firms’ accounting reports. We show that while more harmonized accounting standards have ambiguous effects on the reports’ informativeness in representing firms’ underlying fundamentals, they always reduce their usefulness in forecasting aggregate investments. Therefore, the stronger the beauty contest features, the more important the forecasts about the aggregate investment, thus calling for less harmonized accounting standards. We also find that, absent beauty contest features, mandatory adoption of harmonized accounting standards can be unnecessary; however, such a mandate is warranted when beauty contest features are strong as firms, when left on their own, would not voluntarily do so. Taken together, our results provide both a justification for and identification of an unintended consequence of the recent mandates toward adopting harmonized accounting standards.

Original languageEnglish (US)
Pages (from-to)377-404
Number of pages28
JournalAccounting Review
Issue number7
StatePublished - Nov 2023
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2023 American Accounting Association. All rights reserved.


  • IFRS adoption
  • accounting standards
  • beauty contest
  • correlated reporting noises
  • disclosure
  • harmonization
  • information spillover
  • investment externality


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