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Does IFRS make analysts more efficient in using fundamental information included in financial statements?

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  • Pathiranage, Nandana P.W.
  • Jubb, Christine A.

Abstract

This paper investigates the efficiency with which analysts use fundamental signals when forecasting one-year-ahead change in earnings per share (EPS) in Australian and European contexts and the impact of International Financial Reporting Standards (IFRS) on this efficiency. Results reveal that adoption of IFRS seems to increase analysts’ awareness of fundamental signals useful for predicting future changes in EPS. However, overall, analysts remain only as efficient as they were pre-IFRS in using these fundamental signals. While their efficiency in using the earnings signal decreased, it increased for non-earnings signals in the post-compared to pre-IFRS period. Furthermore, analysts substantially underutilise the earnings signal in common compared to code law countries. These findings are likely to be of interest to analysts and market participants when making forecasts and investment decisions, and to standard setters and regulators in evaluating the impact of accounting standards.

Suggested Citation

  • Pathiranage, Nandana P.W. & Jubb, Christine A., 2018. "Does IFRS make analysts more efficient in using fundamental information included in financial statements?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 14(3), pages 373-385.
    • Handle: RePEc:eee:jocaae:v:14:y:2018:i:3:p:373-385
    DOI: 10.1016/j.jcae.2018.10.004
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    3. Cho, Meeok & Kim, Sehee & Kim, Yewon & Lee, Bryan Byung-Hee & Lee, Woo-Jong, 2021. "IFRS adoption and stock misvaluation: Implication to Korea discount," Research in International Business and Finance, Elsevier, vol. 58(C).
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    5. Wakil, Gulraze & Petruska, Karin A., 2022. "Does mandatory IFRS adoption affect large and small public firms' accounting quality differently? Evidence from Canada," Advances in accounting, Elsevier, vol. 57(C).
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    More about this item

    Keywords

    Analysts’ efficiency; Analysts’ forecasts; Fundamental signals; IFRS;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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