This paper analyzes features of the Mexican accounting model and describes the effect of the accounting differences between Mexico and the U.S. on the relation between equity prices and accounting information reported in the two countries. The influence of U.S. accounting in Mexico is evident in several areas, partly due to the presence of numerous affiliates of U.S. multinational corporations, and also due to the prominence of local representatives of the Big 5 international accounting firms. Still, the Mexican accounting and reporting model addresses special issues—such as inflation accounting—in a manner different from that of the U.S. Using the population of Mexican firms listed on U.S. exchanges as American Depositary Receipts (ADRs), we assess the relationship between Mexican ADR prices and Mexican vs. U.S. GAAP earnings and equity. We find that although Mexican ADR firms are not required to reconcile their inflation accounting to U.S. GAAP, ADR prices are significantly related to Mexican GAAP net income. However, we find no significant relation between the ADR price and net income and equity reconciliations from Mexican to U.S. GAAP. Our results call into question once again the validity and usefulness of the SEC's required reconciliations to U.S. GAAP.
