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Economic Benefits of Adopting IFRS or US-GAAP - Have the Expected Cost of Equity Capital Really Decreased?

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  • Holger Daske
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    Abstract

    The question of whether the adoption of International Financial Reporting Standards (IFRS) results in measurable economic benefits is of special interest, particularly in light of the European Union's adoption of IFRS for listed companies. In this paper, I investigate the common conjecture that internationally recognised financial reporting standards (IAS/IFRS or US-GAAP) reduce the cost of capital for adopting firms. Building on Leuz and Verrecchia (2000) , I use a set of German firms that have adopted such standards and investigate the potential economic benefits of this reporting strategy by analysing their cost of equity capital through the use and customisation of available implied estimation methods. Evidence from the 1993-2002 period fails to document lower expected cost of equity capital for firms applying IAS/IFRS or US-GAAP. During the transition period I analyse, the expected cost of equity capital in fact appear to have rather increased under non-local accounting standards. Copyright Blackwell Publishers Ltd, 2006.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Business Finance & Accounting.

    Volume (Year): 33 (2006-04)
    Issue (Month): 3-4 ()
    Pages: 329-373

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    Handle: RePEc:bla:jbfnac:v:33:y:2006-04:i:3-4:p:329-373

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    Cited by:
    1. Ulf Br&?ggemann & J?rg-Markus Hitz & Thorsten Sellhorn, 2013. "Intended and Unintended Consequences of Mandatory IFRS Adoption: A Review of Extant Evidence and Suggestions for Future Research," European Accounting Review, Taylor & Francis Journals, vol. 22(1), pages 1-37, May.
    2. Jeong-Bon Kim & Haina Shi & Jing Zhou, 2014. "International Financial Reporting Standards, institutional infrastructures, and implied cost of equity capital around the world," Review of Quantitative Finance and Accounting, Springer, vol. 42(3), pages 469-507, April.
    3. Schrödl, Nicolas & Klein, Christian, 2009. "Effects of the IFRS introduction: perspective from an early stadium to the time after the mandatory adoption," Hohenheimer Schriften: Rechnungswesen - Steuern - Wirtschaftsprüfung 2009,1, University of Hohenheim, Department of Business Administration.
    4. Simons, Dirk & Weißenberger, Barbara E., 2007. "Die Konvergenz von externem und internem Rechnungswesen –Kritische Faktoren für die Entwicklung einer partiell integrierten Rechnungslegung aus theoretischer Sicht–," Sonderforschungsbereich 504 Publications 07-67, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
    5. Marco Fasan & Carlo Marcon, 2014. "Accounting Tradition and other drivers of the Fair Value choice: An Opportunistic Management perspective," Working Papers 13, Department of Management, Università Ca' Foscari Venezia.
    6. Pascal Barneto & Georges Gregorio, 2011. "Normes IFRS et mesure de la performance. Étude comparative auprès des établissements bancaires européens," Post-Print hal-00646454, HAL.
    7. Shen, Chung-Hua & Huang , Yu-Li & Hasan , Iftekhar, 2012. "Asymmetric benchmarking in bank credit rating," Research Discussion Papers 13/2012, Bank of Finland.
    8. Holm, Claus & Schøler, Finn, 2008. "Reduction of Asymmetric Information through Corporate Governance Mechanisms : The Importance of Ownership Dispersion and International," Accounting Research Center Working Papers A-2008-02, University of Aarhus, Aarhus School of Business, Department of Business Studies.
    9. Ahmed, Kamran & Chalmers, Keryn & Khlif, Hichem, 2013. "A Meta-analysis of IFRS Adoption Effects," The International Journal of Accounting, Elsevier, vol. 48(2), pages 173-217.
    10. Paul André & Peter Walton & Dan Yang, 2012. "Voluntary adoption of IFRS: A study of determinants for UK unlisted firms," Post-Print hal-00935013, HAL.
    11. Bozos, Konstantinos & Ratnaike, Yasanji C. & Alsharairi, Malek, 2014. "How has the international harmonization of financial reporting standards affected merger premiums within the European Union?," International Review of Financial Analysis, Elsevier, vol. 31(C), pages 48-60.
    12. Papadamou, Stephanos & Tzivinikos, Trifon, 2013. "The risk relevance of International Financial Reporting Standards: Evidence from Greek banks," International Review of Financial Analysis, Elsevier, vol. 27(C), pages 43-54.

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