Abstract

http://ssrn.com/abstract=1264101
 
 

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Does Mandatory IFRS Adoption Improve the Information Environment?


Joanne Horton


University of Exeter Business School

George Serafeim


Harvard University - Harvard Business School

Ioanna Serafeim


Capital Market Commission

2013

Contemporary Accounting Research, Vol. 30, No. 1: 388-423.

Abstract:     
More than 120 countries require or permit the use of International Financial Reporting Standards (‘IFRS’) by publicly listed companies on the basis of higher information quality and accounting comparability from IFRS application. However, the empirical evidence about these presumed benefits are often conflicting and fail to separate between information quality and comparability. In this paper we examine the effect of mandatory IFRS adoption on firms’ information environment. We find that after mandatory IFRS adoption consensus forecast errors decrease for firms that mandatorily adopt IFRS relative to forecast errors of other firms. We also find decreasing forecast errors for voluntary adopters, but this effect is smaller and not robust. Moreover, we show that the magnitude of the forecast errors decrease is associated with the firm-specific differences between local GAAP and IFRS. This finding suggests that it is IFRS adoption rather than a correlated unobservable factor that is causing forecast errors to decrease. Exploiting individual analyst level data and isolating settings where analysts would benefit more from either increased comparability or higher quality information, we document that the improvement in the information environment is driven both by information and comparability effects. These results suggest that mandatory IFRS adoption has improved the quality of information intermediation in capital markets and as a result firms’ information environment by increasing both information quality and accounting comparability.

Number of Pages in PDF File: 57

Keywords: IFRS, analysts, information environment, comparability, information quality

JEL Classification: M41, M44, M47, G14, G15, G29

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Date posted: September 6, 2008 ; Last revised: July 19, 2013

Suggested Citation

Horton, Joanne and Serafeim, George and Serafeim, Ioanna, Does Mandatory IFRS Adoption Improve the Information Environment? (2013). Contemporary Accounting Research, Vol. 30, No. 1: 388-423.. Available at SSRN: http://ssrn.com/abstract=1264101 or http://dx.doi.org/10.2139/ssrn.1264101

Contact Information

Joanne Horton
University of Exeter Business School ( email )
Streatham Court
Xfi Building, Rennes Dr.
Exeter, EX4 4JH
United Kingdom
George Serafeim (Contact Author)
Harvard University - Harvard Business School ( email )
381 Morgan Hall
Boston, MA 02163
United States
HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facId=15705
Ioanna Serafeim
Capital Market Commission ( email )
Athens
Greece
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