The Impact of IFRS Adoption on the Value Relevance of Book Value and Earnings

By Peter M. Clarkson, J. Hanna, Gordon Richardson, Rex Thompson. 2011

264 citations recorded by the source corpus.

In this study, we investigate the impact of IFRS adoption in Europe and Australia on the relevance of book value and earnings for equity valuation. Using a sample of 3488 firms that initially adopted International Financial Reporting Standards (IFRS) in 2005, we are able to compare the figures originally reported for the 2004 fiscal years to the IFRS figures that were provided in 2005 as the 2004 IFRS comparative figures. As part of the inquiry, we introduce a cross-product term, equal to the product of EPS and BVPS, into the traditional linear pricing models. The estimated coefficient on the cross-product term is statistically significant and negative, as theory suggests in the presence of important nonlinearities. Further, there is increased non-linearity in the data subsequent to IFRS adoption, with the increase being most pronounced for firms in Common Law countries. With non-linear effects controlled for, there is no observed change in price relevance for firms in either Code Law or Common Law countries, contradicting the results from the linear pricing models. The results also suggest that the distribution of measurement errors becomes more similar across Code Law and Common Law countries after the adoption of IFRS, removing one difference between these groups. Thus, IFRS enhances comparability, an inference that would not be possible had we confined the analysis only to linear pricing models.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/129783410455f13aba2da8fc053e754c009cd30d

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In Accounting

1. Jayne M. Godfrey
2. K. Chalmers
3. Greg Clinch
4. Philip Brown
5. Mostafa Hassan
6. Diogenis Baboukardos
7. L. L. Rodrigues
8. Carmelo Reverte

In Strategy and Management

1. Greg Clinch
2. Jayne M. Godfrey
3. K. Chalmers
4. Philip Brown
5. Diogenis Baboukardos
6. Carmelo Reverte

Citations in the corpus

• Does Mandatory IFRS Adoption Improve Information Comparability (2012, unknown): “Because mandatory IFRS are some of the most important financial reporting regulations in recent years, many studies have examined the various effects of their adoption (e.g., Capkun et al. 2008; Daske et al. 2008; Armstrong et al. 2010; Horton and Serafeim 2010; Clarkson et al. 2011).”
• Changes in value relevance of accounting information upon IFRS adoption: Evidence from Australia (2011, methodology): “…in IFRS financial statements and local GAAP financial statements covering the same reporting period (Capkun et al., 2008; Chalmers et al., 2008; Clarkson et al., 2010; Gjerde et al., 2008).8 Using a multi-jurisdictional setting and observations from nine European countries, Capkun et al.…”