Mandatory IFRS Adoption and Financial Statement Comparability

By Francois Brochet, Alan D. Jagolinzer, Edward J. Riedl. 2013

342 citations recorded by the source corpus.

This study examines whether mandatory adoption of International Financial Reporting Standards (IFRS) leads to capital market benefits through enhanced financial statement comparability. UK domestic standards are considered very similar to IFRS (Bae et al. 2008), suggesting any capital market benefits observed for UK-domiciled firms are more likely attributable to improvements in comparability (i.e., better precision of across-firm information) than to changes in information quality specific to the firm (i.e., core information quality). If IFRS adoption improves financial statement comparability, we predict this should reduce insiders’ ability to benefit from private information. Consistent with these expectations, we find that abnormal returns to insider purchases ― used to proxy for private information ― are reduced following IFRS adoption. Similar results obtain across numerous subsamples and proxies used to isolate IFRS effects attributable to comparability. Together, the findings are consistent with mandatory IFRS adoption improving comparability and thus leading to capital market benefits by reducing insiders’ ability to exploit private information.

Subfields: Accounting, Finance, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/6a873f267dd2e8d0472ecb0f8e5fd7b4c2348843

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Citations in the corpus

Does Mandatory Adoption of IFRS improve Accounting Quality? Preliminary Evidence (2013, background): “Brochet, Jagolinzer, and Riedl (2011) find that information asymmetry declines among UK firms with ex ante high quality information environments consistent with an increase in comparability.”
Does a common set of accounting standards affect tax-motivated income shifting for multinational firms? (2016, background): “7 For empirical evidence on the effect of IFRS on financial statement comparability and quality, see Barth et al. (2012) (2008), Brochet et al. (2013), Christensen et al. (2013) (2015), Lang et al. (2010), Liao et al. (2012), Yip and Young (2012), and Wang (2014).”
Mandatory IFRS Adoption and the Contractual Usefulness of Accounting Information in Executive Compensation (2012, positive): “Furthermore, Brochet et al. [2011] find that mandatory IFRS adoption improves comparability, and thus, reduces insiders’ ability to exploit private information.”
A review of the IFRS adoption literature (2016, background): “Although the results found by Brochet et al. (2013) support their predictions, the study is unclear about what types of private”
Financial Statement Comparability and the Efficiency of Acquisition Decisions (2018, neutral): “(2011), Brochet et al. (2013), and Horton et al.”
What drives the comparability effect of mandatory IFRS adoption? (2014, neutral): “Using a sample of UK firms, Brochet et al. (2013) document a decrease in information asymmetries following the introduction of IFRS.”