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Equity Offerings Abroad and the adoption of IFRS: A test of the Capital Markets Liability of Foreignness

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    We examine how the reduction in information asymmetry brought about by the adoption of International Financial Reporting Standards (IFRS) affects the adverse selection costs of issuing equity at home and abroad. In particular, we examine whether there has been a reduction in the costs of raising equity in foreign markets- the capital markets liability of foreignness (CMLOF). Consistent with the view that mandatory IFRS adoption reduces information asymmetry, we find an increase in equity issues following IFRS adoption. In addition, we find an increase in the probability of firms issuing equity (and in the amount of equity raised) in foreign markets following IFRS adoption, suggesting a reduction in CMLOF costs. These results are more pronounced for smaller firms, with lower analyst coverage, and for firms with more need of external finance. Finally, we find lower adverse reaction to the announcement of equity offerings in foreign markets following IFRS adoption.

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    File URL: http://www.nipe.eeg.uminho.pt/Uploads/NIPE_WP_21_2013.pdf
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    Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 21/2013.

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    Date of creation: 2013
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    Handle: RePEc:nip:nipewp:21/2013
    Contact details of provider: Postal: Núcleo de Investigação em Políticas Económicas, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal
    Phone: +351-253604510 ext 5532
    Fax: +351-253601380
    Web page: http://www3.eeg.uminho.pt/economia/nipe/versao_inglesa/index_uk.htm
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