The Value Relevance of Foreign Income: an Australian, Canadian, and British Comparison

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Abstract
In this paper we examine the value relevance of geographical earnings disclosures for firms listed and domiciled in Australia, Canada and the United Kingdom. We find that foreign earnings in all three countries are valued differently than domestic earnings. The estimate of the association coefficient for foreign earnings changes with returns is positive in all three countries and statistically larger than the association coefficient for domestic earnings changes in Canada and the United Kingdom. Further tests show that this difference is related to relative growth opportunities of overseas operations to domestic operations. These findings are similar to results for foreign earnings association coefficients for American‐based multinationals found in Bodnar and Weintrop (1997). These results indicate that across countries the market perceives the results of foreign operations as value relevant and suggests that greater emphasis should be placed on the required disclosure of segmental data rather than on the concern that all countries prepare the segmental information using a common GAAP.

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