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Mandatory IFRS Reporting and Stock Price Informativeness

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Author Info

  • Beuselinck, C.A.C.
  • Joos, P.P.M.
  • Khurana, I.K.
  • Meulen, S. van der

    (Tilburg University, Center for Economic Research)

Abstract

In this paper, we examine whether mandatory adoption of IFRS influences the flow of firm-specific information and contributes to stock price informativeness as measured by stock return synchronicity. Using a constant sample of 1,904 mandatory IFRS adopters in 14 EU countries for the period 2003-2007, we find a V-shaped pattern in synchronicity around IFRS adoption, which is consistent with IFRS disclosures revealing new firm-specific information in the adoption period (i.e., a reduction of synchronicity) and subsequently lowering the surprise of future disclosures (i.e., an increase in synchronicity). We also find mandatory IFRS adoption increases analysts’ ability to incorporate industry-level information into stock price. However, we are unable to detect a reduction in the private information advantage enjoyed by institutional owners post-IFRS adoption. Moreover, we find the synchronicity effects to be more pronounced for firms in countries with larger differences in local GAAP relative to IFRS. Overall, our evidence yields novel insights on the consequences of mandatory IFRS adoption by investigating its effect on stock price informativeness and the distinctive roles played by a firm’s information environment.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2010-82.

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Date of creation: 2010
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Handle: RePEc:dgr:kubcen:201082

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Web page: http://center.uvt.nl

Related research

Keywords: IFRS; mandatory adoption; stock return synchronicity; information environment;

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References

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  1. Ding, Yuan & Hope, Ole-Kristian & Jeanjean, Thomas & Stolowy, Herve, 2007. "Differences between domestic accounting standards and IAS: Measurement, determinants and implications," Journal of Accounting and Public Policy, Elsevier, vol. 26(1), pages 1-38.
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Citations

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Cited by:
  1. Ulf Brüggemann & Jörg-Markus Hitz & Thorsten Sellhorn, 2012. "Intended and unintended consequences of mandatory IFRS adoption: A review of extant evidence and suggestions for future research," SFB 649 Discussion Papers SFB649DP2012-011, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. Hubert De La Bruslerie, 2013. "Share repurchase: Does it increase the informativeness of market prices?," Post-Print halshs-00937565, HAL.
  3. Gilberto Loureiro & Alvaro G. Taboada, 2013. "Do Improvements in the Information Environment Affect Real Investment Decisions?," NIPE Working Papers 20/2013, NIPE - Universidade do Minho.
  4. Palea, Vera, 2013. "IAS/IFRS and Financial Reporting Quality: Lessons from the European Experience," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201330, University of Turin.
  5. Pierre Bonetti & Antonio Parbonetti & Michel Magnan, 2013. "The Influence of Country- and Firm-Level Governance on Financial Reporting Quality: Revisiting the Evidence," CIRANO Working Papers 2013s-03, CIRANO.
  6. de La Bruslerie, Hubert, 2013. "Share repurchase: Does it increase the informativeness of market prices?," Economics Papers from University Paris Dauphine 123456789/11381, Paris Dauphine University.
  7. Philip Brown, 2011. "International Financial Reporting Standards: what are the benefits?," Accounting and Business Research, Taylor & Francis Journals, vol. 41(3), pages 269-285, August.

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