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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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    File URL: http://www.hbs.edu/research/pdf/09-032.pdf
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Eichler, Stefan, 2012. "Equity home bias and corporate disclosure," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 1008-1032.
    2. Macías, Marta & Muiño, Flora, 2011. "Examining dual accounting systems in Europe," The International Journal of Accounting, Elsevier, vol. 46(1), pages 51-78, March.
    3. Huian Maria Carmen, 2012. "Accounting for Financial Assets and Financial Liabilities According to IFRS 9," Scientific Annals of Economics and Business, De Gruyter Open, vol. 59(1), pages 27-47, July.
    4. 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.
    5. 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.

    More about this item

    Keywords

    IFRS; IAS 39; Convergence; Europe; Event Study;

    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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