A recent study by Dr Heylel-li Biton of the Hebrew University Business School offers fresh insight into a long-standing question in international finance: why do foreign firms listed on U.S. stock exchanges opt for one accounting standard over another? Rather than simply conforming to regulatory norms in their listing jurisdiction, these companies make deliberate, strategic choices when selecting between International Financial Reporting Standards (IFRS) and U.S. Generally Accepted Accounting Principles (U.S. GAAP).

Published in The International Journal of Accounting, the research investigates the underlying motivations of U.S.-listed foreign private issuers (FPIs) in their adoption of accounting standards. In contrast to previous studies, which tended to focus on regulatory alignment or investor familiarity, Dr Biton’s work emphasises two pivotal yet often overlooked considerations: the desire for flexibility in financial reporting and the relative burden of compliance costs.

The findings reveal a nuanced calculus behind these firms’ decisions. Many FPIs lean towards IFRS when their financial reporting would benefit from the standard’s broader range of presentation options across core elements such as assets, liabilities, revenue, and expenses. In such cases, U.S. GAAP is often avoided due to its more rigid framework.
However, the study also finds that some firms prefer U.S. GAAP precisely because it reduces compliance complexity and associated costs. This advantage was especially relevant before the 2007 elimination of SEC reconciliation requirements for IFRS filers.

“This research demonstrates that selecting an accounting regime is far from a perfunctory regulatory choice,” said Dr Biton. “It is, in fact, a strategic decision informed by operational priorities, financial disclosure preferences, and cost efficiency. These findings have important implications not only for understanding firm behaviour but also for shaping more adaptive regulatory responses.”

To underpin her analysis, Dr Biton drew upon a comprehensive dataset encompassing 811 firms and 1,214 individual accounting regime selections between 1995 and 2015. Her methodological innovation—a scoring system to quantify the degree of reporting flexibility required by firms—was paired with data on compliance costs to produce a multidimensional understanding of the trade-offs involved in selecting a regime.

The implications of the study extend well beyond academia. For regulators and standard-setters, these insights shed light on the real-world considerations firms face when navigating transnational accounting environments. For investors, the findings shed light on how accounting policy choices may signal strategic priorities or constraints. For corporate decision-makers, the research underscores the importance of aligning financial reporting strategies with broader business objectives.

In an era marked by increasing regulatory complexity and global capital mobility, Dr Biton’s study contributes a timely and practical perspective to the ongoing dialogue on international accounting standards. It reaffirms that behind every accounting choice lies a strategic intent—one that bridges financial disclosure and the evolving realities of cross-border corporate governance.

More information: Heylel-li Biton, Accounting Regime Selection, The International Journal of Accounting. DOI: 10.1142/S1094406025430036

Journal information: The International Journal of Accounting Provided by The Hebrew University of Jerusalem