Mandatory IFRS Reporting and Stock Price Informativeness

Abstract:     
In this paper, we examine whether mandatory adoption of IFRS reduces firm opacity and contributes to stock price informativeness. Using data from EU countries, we document a V-shaped pattern in stock return synchronicity around IFRS adoption which is consistent with IFRS disclosures revealing new firm-specific information in the adoption period (i.e., a reduction of synchronicity) and subsequently lowering the surprise of future disclosures (i.e., an increase in synchronicity). We also find that mandatory IFRS adoption (1) increases analyst ability to incorporate industry-level information into stock prices and (2) reduces the private information advantage enjoyed by institutional owners. Further, our results are especially driven by firms domiciled in strong enforcement countries, highlighting the importance of enforcement quality for the transparency effects of IFRS. Overall, our study highlights the role of several key elements of the information environment and how these elements interact with accounting standards.

Number of Pages in PDF File: 54

Keywords: Mandatory IFRS adoption, stock price informativeness, synchronicity

JEL Classification: M41, M45, G12, N20

working papers series