The Impact of Mandatory IFRS Adoption on Foreign Mutual Fund Ownership: The Role of Comparability
Mark L. DeFond
University of Southern California - Leventhal School of Accounting
University of Oregon - Department of Accounting
Hong Kong University of Science & Technology (HKUST); University of Southern California - Leventhal School of Accounting; Hong Kong University of Science & Technology (HKUST) - Department of Accounting
Santa Clara University - Leavey School of Business
December 9, 2010
SCU Leavey School of Business Research Paper No. 09-06
Proponents of International Financial Reporting Standards (IFRS) argue that mandating a uniform set of accounting standards improves financial statement comparability that in turn attracts greater cross-border investment. Our study tests this assertion by examining the change in foreign mutual fund investment in firms that began using IFRS after its mandatory adoption in the European Union (EU) in 2005. We hypothesize that firms experience larger increases in foreign mutual fund ownership when there is a credible increase in uniformity from IFRS adoption. We define a credible increase in uniformity as a large increase in the number of industry peers using the same accounting standards in countries where IFRS is credibly implemented. Consistent with our hypothesis, we find that subsequent to mandatory IFRS adoption, the increase in foreign mutual fund investment is greater among the firms that experience relatively large increases in uniformity and are in countries with strong implementation credibility.
Number of Pages in PDF File: 48
Keywords: Mandatory IFRS adoption, financial statement comparability, cross-border investment
JEL Classification: G15, M41
Date posted: September 15, 2009 ; Last revised: May 17, 2011
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