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Market Reaction to the Adoption of IFRS in Europe

Author

Listed:
  • Christopher S. Armstrong

    (The Wharton School, University of Pennsylvania)

  • Mary E. Barth

    (Graduate School of Business, Stanford University)

  • Alan D. Jagolinzer

    (Graduate School of Business, Stanford University)

  • Edward J. Riedl

    (Harvard Business School, Accounting and Management Unit)

Abstract

This study examines the European stock market reaction to sixteen events associated with the adoption of International Financial Reporting Standards (IFRS) in Europe. European IFRS adoption represented a major milestone towards financial reporting convergence yet spurred controversy reaching the highest levels of government. We find a more positive reaction for firms with lower quality pre-adoption information, which is more pronounced in banks, and with higher pre-adoption information asymmetry, consistent with investors expecting net information quality benefits from IFRS adoption. We also find that the reaction is less positive for firms domiciled in code law countries, consistent with investors' concerns over enforcement of IFRS in those countries. Finally, we find a positive reaction to IFRS adoption events for firms with high quality pre-adoption information, consistent with investors expecting net convergence benefits from IFRS adoption. Overall, the findings suggest that investors in European firms perceived net benefits associated with IFRS adoption.

Suggested Citation

  • Christopher S. Armstrong & Mary E. Barth & Alan D. Jagolinzer & Edward J. Riedl, 2008. "Market Reaction to the Adoption of IFRS in Europe," Harvard Business School Working Papers 09-032, Harvard Business School.
    • Handle: RePEc:hbs:wpaper:09-032
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    Cited by:

    1. Cuzman, Ioan & Dima, Bogdan & Dima (Cristea), Stefana Maria, 2010. "IFRSs for financial instruments, quality of information and capital market’s volatility: an empirical assessment for Eurozone," MPRA Paper 27167, University Library of Munich, Germany.
    2. Pius V.C. Okoye & Jane F.N. Okoye & Raymond A. Ezejiofor, 2014. "Impact of the IFRS Adoption on Stock Market Movement in Nigerian Corporate Organization," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 4(9), pages 202-218, September.
    3. repec:mth:ijafr8:v:8:y:2018:i:3:p:51-77 is not listed on IDEAS
    4. Karl A. Muller & Edward J. Riedl & Thorsten Sellhorn, 2008. "Consequences of Voluntary and Mandatory Fair Value Accounting: Evidence Surrounding IFRS Adoption in the EU Real Estate Industry," Harvard Business School Working Papers 09-033, Harvard Business School.
    5. Eichler, Stefan, 2012. "Equity home bias and corporate disclosure," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 1008-1032.
    6. Macías, Marta & Muiño, Flora, 2011. "Examining dual accounting systems in Europe," The International Journal of Accounting, Elsevier, vol. 46(1), pages 51-78, March.
    7. Youssef Alami & Mohamed Rachid Ouezzani, 2015. "Evidence of the Impact of Methods of Implementation of IFRS on the Relevance of Accounting Information," Business and Economic Research, Macrothink Institute, vol. 5(1), pages 227-242, June.
    8. Huian Maria Carmen, 2012. "Accounting for Financial Assets and Financial Liabilities According to IFRS 9," Scientific Annals of Economics and Business, Sciendo, vol. 59(1), pages 27-47, July.
    9. Edona PERJUCI & Hysen ISMAJLI & Ardiana BUNJAKU, 2019. "Adoption of International Financial Reporting Standards (IFRSs) and their Impact on Loan Terms: Kosovo Case," The Audit Financiar journal, Chamber of Financial Auditors of Romania, vol. 17(153), pages 124-124.
    10. Mariarosaria Agostino & Danilo Drago & Damiano Silipo, 2011. "The value relevance of IFRS in the European banking industry," Review of Quantitative Finance and Accounting, Springer, vol. 36(3), pages 437-457, April.
    11. Günther, Nina & Gegenfurtner, Bernhard & Kaserer, Christoph & Achleitner, Ann-Kristin, 2009. "International financial reporting standards and earnings Quality: the myth of voluntary vs. mandatory adoption," CEFS Working Paper Series 2009-09, Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS).
    12. Julio Cesar Araujo da Silva Junior & Joao F. Caldeira & Hudson da Silva Torrent, 2017. "Effects of IFRS on Accounting Information Quality: Evidence for Brazil," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(5), pages 44-57, May.
    13. Kyriazopoulos Georgios & Makriyiannis Georgios & Logotheti Maria-Rafailia, 2019. "The Impact of Deferred Taxation on Banking Profitability and Capital Adequacy. Evidence from the Greek Banking System," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 5(1), pages 1-13.

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    More about this item

    Keywords

    IFRS; IAS 39; Convergence; Europe; Event Study;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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