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International Financial Reporting Standards and Market Efficiency: A European Perspective

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  • M. Lambert
  • G. Hübner

    ()
    (HEC Management School - University of Liège)

  • P.-A. Michel
  • H. Olivier
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    Abstract

    We investigate how the voluntary adoption of the International Financial Reporting Standards (IFRS) prior to 2005 has contributed to the informational efficiency regarding pan-European stock markets. We find evidence of the potential usefulness of the IFRS for making financial decisions. Taking a sample of IFRS early adopters, our study indicates that the new standards clearly support the semistrong-form of market efficiency for the firms disclosing good accounting news, while a more progressive diffusion of information and a penalty effect occur for the bad news firms. There is also evidence of an improvement in information asymmetries, thanks to the adoption of the IFRS, providing support for their contribution to the strong-form of market efficiency.

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    Bibliographic Info

    Paper provided by Luxembourg School of Finance, University of Luxembourg in its series LSF Research Working Paper Series with number 06-04.

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    Date of creation: 2006
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    Handle: RePEc:crf:wpaper:06-04

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    Related research

    Keywords: IFRS; Efficient market hypothesis (EMH); Event study; Bid-ask spread.;

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    1. Slovic, Paul & Finucane, Melissa & Peters, Ellen & MacGregor, Donald G., 2002. "Rational actors or rational fools: implications of the affect heuristic for behavioral economics," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 31(4), pages 329-342.
    2. George, Thomas J & Kaul, Gautam & Nimalendran, M, 1991. "Estimation of the Bid-Ask Spread and Its Components: A New Approach," Review of Financial Studies, Society for Financial Studies, vol. 4(4), pages 623-56.
    3. Lambert, R. A., 2003. "Discussion of 'limited attention, information disclosure, and financial reporting'," Journal of Accounting and Economics, Elsevier, vol. 36(1-3), pages 387-400, December.
    4. Taylor, Martin E. & Jones, Roberta Ann, 1999. "The use of International Accounting Standards terminology, a survey of IAS compliance disclosure," The International Journal of Accounting, Elsevier, vol. 34(4), pages 557-570, 010.
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    9. Garfinkel, Jon A. & Nimalendran, M., 2003. "Market Structure and Trader Anonymity: An Analysis of Insider Trading," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(03), pages 591-610, September.
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    11. Hirshleifer, David & Teoh, Siew Hong, 2003. "Limited attention, information disclosure, and financial reporting," Journal of Accounting and Economics, Elsevier, vol. 36(1-3), pages 337-386, December.
    12. Paul Rosenfield, 2005. "The focus of attention in financial reporting," Abacus, Accounting Foundation, University of Sydney, vol. 41(1), pages 1-20.
    13. David Aboody, 2002. "Measuring Value Relevance in a (Possibly) Inefficient Market," Journal of Accounting Research, Wiley Blackwell, vol. 40(4), pages 965-986, 09.
    14. Kothari, S. P., 2001. "Capital markets research in accounting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 105-231, September.
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