Market Reaction to the Adoption of IFRS in Europe

2010 ◽  
Vol 85 (1) ◽  
pp. 31-61 ◽  
Author(s):  
Christopher S. Armstrong ◽  
Mary E. Barth ◽  
Alan D. Jagolinzer ◽  
Edward J. Riedl
Keyword(s):  
Information Asymmetry ◽  
Positive Reaction ◽  
Financial Reporting ◽  
Information Quality ◽  
Reporting Standards ◽  
High Quality ◽  
Market Reactions ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
Stock Market Reactions

ABSTRACT: This study examines European stock market reactions to 16 events associated with the adoption of International Financial Reporting Standards (IFRS) in Europe. European IFRS adoption represented a major milestone toward financial reporting convergence yet spurred controversy reaching the highest levels of government. We find an incrementally positive reaction for firms with lower quality pre-adoption information, which is more pronounced for banks, and with higher pre-adoption information asymmetry, consistent with investors expecting net information quality benefits from IFRS adoption. We find an incrementally negative reaction for firms domiciled in code law countries, consistent with investors' concerns over enforcement of IFRS in those countries. Finally, we find a positive reaction to IFRS adoption events for firms with high-quality pre-adoption information, consistent with investors expecting net convergence benefits from IFRS adoption.

scholarly journals The Relation between Income Smoothing, Earnings Persistence and IFRS Adoption

2018 ◽  
Vol 16 (2) ◽  
pp. 251
Author(s):  
Ana Carolina Kolozsvari ◽  
Marcelo Alvaro Da Silva Macedo
Keyword(s):  
Time Series ◽  
Financial Reporting ◽  
Information Quality ◽  
Income Smoothing ◽  
Earnings Persistence ◽  
Reporting Standards ◽  
Financial Reporting Standards ◽  
Ifrs Adoption

This research approaches the influence of smoothing on persistence, two time-series properties of the same earnings stream, considering the adoption of International Financial Reporting Standards (IFRS), in Brazil. This influence is interesting from the possibility of the disclosure to inform stability to influence the information quality for valuation. The objective was to investigate whether the IFRS adoption modified the smoothing-persistence relation. We inserted dummies in autoregressive models, to identify the influence of smoothing on persistence regarding different accounting environments. The findings show that (i) the IFRS adoption increased the quality of earnings; (ii) the IFRS shifted the role of smoothing, that previously increased and then decreased the persistence; and (iii) the smoothing suppressed the benefits for information quality brought by IFRS adoption. We conclude that IFRS increased the informational level of earnings, evidencing that interferences to mitigate impacts on reported income ceased to increase and started to decrease its usefulness.

scholarly journals A study of Effects and implications of differences between Indian GAAP and IFRS

2020 ◽  
Author(s):  
Anubha Srivastava
Keyword(s):  
Financial Reporting ◽  
Reporting System ◽  
Financial Burden ◽  
Accounting Standards ◽  
Financial Statement ◽  
Reporting Standards ◽  
High Quality ◽  
Accounting Standard ◽  
Financial Reporting Standards ◽  
Ifrs Adoption

Economic growth in any economy requires sustainable high-quality financial reporting standards. However in the era of globalization, with rapidly changing rules and regulations in accounting world, Indian financial reporting system too cannot be isolated from the global developments. Lack of standardization in different accounting standards imposes a financial burden on all the stakeholders, which includes both internal as well as external burden to an organization. It is also too cumbersome for investors to compare the financial statement of corporates if they follow different accounting policy. It was felt that there should be one global set of accounting standards for all. Thus IASB came in existence and formulated IFRS. IFRS is high-quality principle-based accounting standard which aims to bring uniformity comparability and transparency in accounting world. In India the conversion process has started in 2015-16 onwards where all the accounting standards will be gradually fully converged with IFRS and will be named as Ind as. This paper attempts to find out the key difference among IFRS, Indian GAAP and ind AS and its implications. A questionnaire survey has been conducted to find out the implication of differences. The paper concludes that adoption of IFRS would benefit the economy in all aspects. Keywords: IFRS, Indian GAAP, Ind AS, key difference between IFRS, Ind AS and Indian GAAP, IFRS adoption,

scholarly journals Earnings management to avoid earnings decreases and losses

2021 ◽  
Vol 20 ◽  
pp. e3153
Author(s):  
Verônica de Fátima Santana ◽  
Raquel Wille Sarquis
Keyword(s):  
United States ◽  
Earnings Management ◽  
Financial Reporting ◽  
Reporting Standards ◽  
Working Capital ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
Geographical Regions ◽  
The World ◽  
Before And After

This study evaluates the prevalence of earnings management to avoid losses and earnings decreases across the World. This practice was first documented by Burgstahler and Dichev (1997) for United States firms from 1976 to 1987. We replicate their study for a more recent and global sample. Firms that do not seem to manage earnings do avoid reporting earnings decreases, but we found persistent evidence of earnings management to avoid reporting losses. The results are consistent across different geographical regions, countries, and before and after International Financial Reporting Standards (IFRS) adoption. Unlike Burgstahler and Dichev (1997), however, we were not able to find evidence on which components of earnings (cash flow from operations, changes in working capital, or other accruals) firms mainly manage to increase earnings, concluding they likely use a bundle of all these components. Our results are important mainly to financial analysts and general investors, who should be careful in giving good prospects to firms who presented small profits since they are likely small losses artificially managed to look better, a practice widely spread across time and geographical regions among IFRS adopters and non-adopters.

The readability impact of international financial reporting standards

2015 ◽  
Vol 27 (3) ◽  
pp. 282-303 ◽  
Author(s):  
Glenn Richards ◽  
Chris van Staden
Keyword(s):  
Computational Linguistics ◽  
Financial Reporting ◽  
Annual Report ◽  
International Financial Reporting Standards ◽  
Reporting Standards ◽  
Content Type ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
Financial Disclosures ◽  
Negative Impacts

Purpose – This paper aims to compare the readability of narrative annual report disclosure pre- and post-International Financial Reporting Standards (IFRS) adoption using a computational linguistics programme to determine if annual report disclosures have become more difficult or easier to read following the adoption of IFRS. Design/methodology/approach – This paper empirically measures narrative annual report disclosure readability pre- and post-IFRS adoption using a computational linguistics programme. In this analysis, the authors control for variables that have been identified as relevant to the understanding of financial disclosures, such as size, business volatility, financial leverage and industry. Findings – Significant relationships have been identified between IFRS adoption and reduced readability indicators using readability formulas, and also using other factors such as increased length of annual report disclosures and increased use of tables. Findings suggest that the adoption of IFRS has added complexity and resulted in reduced readability of annual report disclosures. Practical implications – Academic backing to claims of IFRS’s negative implications for financial statements and their ultimate users should encourage action on the part of standard setters and report preparers to address the negative impacts of IFRS adoption. Originality/value – This paper is the first to provide evidence that New Zealand equivalents to IFRS adoption have resulted in not only longer disclosures but also more complicated disclosures.

Who Benefits From IFRS Convergence in China?

2017 ◽  
Vol 34 (1) ◽  
pp. 99-124 ◽  
Author(s):  
Chao Chen ◽  
Edward Lee ◽  
Gerald J. Lobo ◽  
Jessie Zhu
Keyword(s):  
Stock Market ◽  
Financial Reporting ◽  
Value Relevance ◽  
Reporting Quality ◽  
Chinese Stock Market ◽  
External Financing ◽  
Market Reactions ◽  
Financial Reporting Standards ◽  
Legal Enforcement ◽  
Stock Market Reactions

We study the ex ante stock market reactions to events leading up to China’s convergence to International Financial Reporting Standards (IFRS). The literature consistently shows that the benefits of mandatory IFRS convergence are concentrated in countries with stronger legal enforcement and investor protection. Given that these institutional characteristics are weaker in China relative to more developed Western economies, whether mandating IFRS will benefit the Chinese capital market is an interesting and important, but unanswered question. We find that the Chinese stock market reacts favorably to events leading up to IFRS convergence, and this effect is more pronounced among firms with greater dependence on external capital. This result suggests the market anticipates that such firms will benefit more from IFRS convergence, possibly because of improved financial reporting quality and access to external financing. Additional tests confirm that the value relevance of accounting numbers for these firms is higher following IFRS convergence.

scholarly journals PERFORMANCE APPRAISAL AS A PREDICTOR OF EARNINGS MANAGEMENT IN A CONSUMER GOODS COMPANY: EVIDENCE FROM A COMPARATIVE ASSESSMENT OF PRE-AND POST INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) ADOPTION IN NIGERIA

2020 ◽  
pp. 28-33
Author(s):  
Paul Femi Fashagba ◽  
Abiola Abosede Solanke
Keyword(s):  
Earnings Management ◽  
Performance Appraisal ◽  
Financial Reporting ◽  
Consumer Good ◽  
International Financial Reporting Standards ◽  
Reporting Standards ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
Ratio Data ◽  
Negative Effect

Previous studies have examined the effects of International Financial Reporting Standards (IFRS) adoption on earnings management. However, these studies focused attention on the general implications of IFRS adoption on earnings management with no specific focus on the links between performance appraisal and earnings management in the pre and post IFRS era. The objective of the study is to examine the relationship between performance appraisal and earnings management in Pre and Post IFRS period. The dependent variable in the study is earnings management proxy by earnings per share. The independent variable is performance appraisal measured by profitability ratio, liquidity ratio, and debt ratio. Data were extracted from the records of a consumer good company in Nigeria. The multiple regression analysis was applied. Results revealed that in the pre IFRS period in Nigeria, performance appraisal had significant positive effect on earnings management, while it had significant negative effect in the post IFRS period. It is important that company’s management adhere strictly to the provisions of the IFRS guidelines. KEYWORDS: IFRS, earnings management, profitability, liquidity, debt

scholarly journals The role of Politics and Economics in the International Financial Reporting Standards (IFRS) Adoption

2019 ◽  
Vol 36 (2) ◽  
pp. 407
Author(s):  
Araceli Mora
Keyword(s):  
Financial Reporting ◽  
International Financial Reporting Standards ◽  
Reporting Standards ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
Los Grupos

La adopción de las NIIF desde 2005 ha conllevado beneficios, pero la investigación también ha demostrado que su efecto no ha sido uniforme en los distintos países debido a las diferencias institucionales y en los incentivos. La teoría contractual ofrece un marco teórico para la investigación de las consecuencias económicas y de los incentivos de los grupos de interés para ejercer presión, pero la investigación sobre la actividad de los políticos para interferir en la contabilidad es escasa. El objetivo de este estudio es mostrar el papel de los gobiernos en la contabilidad. Para ello se muestran los cambios acontecidos en el proceso de adopción de las NIIF en la UE para incrementar la interferencia política en nombre del “interés público”, destacando el caso del sector financiero. Se concluye que todas las partes involucradas deberían comprometerse a buscar el equilibrio entre normas basadas en principios y mecanismos de control para mejorar el proceso de comparabilidad con las NIIF.

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