Abstract

http://ssrn.com/abstract=1403451
 
 

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The Impact of Financial Reporting on Equity versus Debt Markets: Macroeconomic Evidence from Mandatory IFRS Adoption


Messod Daniel Beneish


Indiana University - Department of Accounting

Brian P. Miller


Indiana University - Kelley School of Business

Teri Lombardi Yohn


Indiana University

March 5, 2012


Abstract:     
This study investigates whether a shock to financial reporting has a differential impact on debt and equity markets. Using macroeconomic data and a pre-post design centered in 2005, we find that IFRS adoption has a significantly greater effect on foreign debt than on foreign equity investment flows. This result is consistent with the notion that debt investors are greater consumers of financial statement information. Further, consistent with research on the effects of IFRS adoption on individual firms, we find that post-adoption increases in foreign equity investment are limited to countries with high (or improving) governance quality. In contrast, we find increases in foreign debt investment flows are not dependent on governance quality. This is consistent with recent research that concludes that negotiated covenants in bond contracts can offset weak investor protection at the country level. Finally, we find that the increase in foreign equity investment derives primarily from the U.S., whereas the increase in foreign debt investment derives from the U.S. and other non-adopting countries. This evidence that increases in foreign investment originate from non-adopting countries rather than other adopting countries suggests that the benefits from IFRS adoption more likely reflect improved financial reporting quality rather than greater comparability.

Number of Pages in PDF File: 51

Keywords: IFRS, Cross Border Investment, Home Bias, Debt

JEL Classification: M41, G38

working papers series


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Date posted: May 18, 2009 ; Last revised: March 6, 2012

Suggested Citation

Beneish, Messod Daniel and Miller, Brian P. and Yohn, Teri Lombardi, The Impact of Financial Reporting on Equity versus Debt Markets: Macroeconomic Evidence from Mandatory IFRS Adoption (March 5, 2012). Available at SSRN: http://ssrn.com/abstract=1403451 or http://dx.doi.org/10.2139/ssrn.1403451

Contact Information

Messod Daniel Beneish
Indiana University - Department of Accounting ( email )
1309 E. 10th Street
Bloomington, IN 47405
United States
812-855-2628 (Phone)
812-855-4985 (Fax)
Brian P. Miller (Contact Author)
Indiana University - Kelley School of Business ( email )
1309 E. 10th Street
Bloomington, IN 47405
United States
812-855-2606 (Phone)
Teri Lombardi Yohn
Indiana University ( email )
1309 East Tenth Street
Bloomington, IN 47405-1701
United States
(812) 855-0430 (Phone)
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