International Financial Reporting Standards and Market Efficiency: A European Perspective
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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