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Investment allocation decisions, home bias and the mandatory IFRS adoption

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  • Hamberg, Mattias
  • Mavruk, Taylan
  • Sjögren, Stefan

Abstract

We examine the familiarity hypothesis of home bias by studying how foreign ownership of Swedish firms is affected by the mandatory adoption of IFRS. We decompose foreign investors into institutional and non-institutional investors. Foreign investors are further decomposed into EU (IFRS adopting countries) and non-EU residents (non-IFRS adopting countries). We analyse the equity investments of these foreign investor groups in Sweden during the period of 2001–2007. We find that after the mandatory adoption of IFRS, foreign ownership/owners from countries that adopted IFRS and particularly those from the EU increased. These effects are particularly strong in small firms. Foreign institutional investors increased their ownership stake after the mandatory IFRS adoption, whereas foreign non-institutional investments were not affected significantly by the IFRS adoption. In contrast to ownership from non-adopting countries, ownership from the EU increased in firms with both more and less tangible assets. Similarly, foreign ownership from the EU increased in firms with both concentrated ownership and dispersed ownership after the adoption. Because Sweden has already had strict legal enforcement and a low level of earnings management prior to the adoption, our results suggest that increased foreign ownership is due to better abilities to compare firms rather than an improved quality.

Suggested Citation

  • Hamberg, Mattias & Mavruk, Taylan & Sjögren, Stefan, 2013. "Investment allocation decisions, home bias and the mandatory IFRS adoption," Journal of International Money and Finance, Elsevier, vol. 36(C), pages 107-130.
  • Handle: RePEc:eee:jimfin:v:36:y:2013:i:c:p:107-130
    DOI: 10.1016/j.jimonfin.2013.04.001
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    Cited by:

    1. Taylan Mavruk & Evert Carlsson, 2015. "How long is a long-term-firm investment in the presence of governance mechanisms?," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 5(1), pages 117-149, June.
    2. Kim, Heeho & Cho, Seong-Hoon & Kim, Yongku, 2015. "Home bias, risk differential, and cultural spatial spillover effects," Journal of International Money and Finance, Elsevier, vol. 51(C), pages 114-136.
    3. Curatola, Giuliano & Dergunov, Ilya, 2017. "International capital markets with time-varying preferences," SAFE Working Paper Series 176, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    4. Hela Garrouch, 2016. "Reaction of Foreign Institutional Investors to Mandatory IFRS Adoption: French Evidence," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(11), pages 30-47, November.

    More about this item

    Keywords

    Foreign investments; Home bias; IFRS; Institutional and non-institutional investors;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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