Turning lastly to value relevance, we expect that firms with higher quality accounting have a higher association between stock prices and earnings and equity book value because higher quality earnings better reflect a firm’s underlying economics (Barth, Beaver, and Landsman [2001]). First, higher quality accounting results from applying accounting standards that require recognition of amounts that are intended to faithfully represent a firm’s underlying economics. Second, higher quality accounting is less subject to opportunistic managerial discretion. These two features of higher quality accounting are linked together by Ewert and Wagenhofer [2005], who show that accounting standards that limit opportunistic discretion result in accounting earnings tiiat have higher value relevance. Third, higher quality accounting has less non opportunistic error in estimating accruals. Consistent with these three features of higher quality accounting, prior empirical research suggests tiiat higher quality earnings are more value relevant (Lang, Raedy, and Yetman [2003], Leuz, Nanda, and Wysocki [2003], Lang, Raedy, and Wilson [2006]). Accordingly, we predict tiiat firms applying IAS exhibit higher value relevance of net income and equity book value than firms applying domestic standards.