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IFRS adoption and stock misvaluation: Implication to Korea discount

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  • Cho, Meeok
  • Kim, Sehee
  • Kim, Yewon
  • Lee, Bryan Byung-Hee
  • Lee, Woo-Jong

Abstract

Analyzing publicly traded stocks in Korea surrounding IFRS adoption in 2011, we find that the gap between stock price and firm value, value-to-price (V/P) ratio, narrows following the IFRS adoption and that this narrowed gap is observed only for higher V/P firms. We further find that the return predictability of V/P decreases in the post-IFRS period. Using a path analysis, we report further evidence that mandatory IFRS adoption decreases idiosyncratic volatility and improves trading volume and market liquidity, thereby contributing to the narrowed gap between value and price. We conclude that IFRS adoption contributes to resolution of Korea discount.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:riibaf:v:58:y:2021:i:c:s027553192100115x
    DOI: 10.1016/j.ribaf.2021.101494
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    More about this item

    Keywords

    Mandatory IFRS adoption; Residual income model; Market efficiency; Stock misvaluation;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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