The Effect of the European Regulation 1606/2002 on Market Efficiency: Early Empirical Evidence and Some Suggestions for Future Research and Policy-Making Discussion
The European Regulation 1606/2002 has required European firms listed on the European stock markets to prepare, starting from 2005, their consolidated financial statements according to the international accounting standards IAS/IFRS. The purpose of such a regulation is to ensure a high degree of transparency and comparability of financial statements and, hence, an efficient functioning of the European capital market. This paper investigates whether such a purpose can be considered as reached by focusing on the firms’ cost of capital. It shows that early evidence documents beneficial effects from the IAS/IFRS adoption, even though such effects vary due to differences still persisting in the European countries’ institutional frameworks and firms’ incentives. The paper also makes some suggestions for future research and policy-making discussion
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