Earnings Comovement and Accounting Comparability: The Effects of Mandatory IFRS Adoption
Mark H. Lang
University of North Carolina at Chapel Hill
Mark G. Maffett
University of Chicago - Booth School of Business
Edward L. Owens
University of Rochester - Simon School of Business
September 14, 2010
Simon School Working Paper No. FR 11-03
We examine changes in cross-country financial statement comparability around mandatory IFRS adoption and the effects of these changes on firms’ information environments, as captured by analyst properties and bid-ask spreads. First, we show that cross-country earnings comovement is negatively associated with favorable properties of the firm-level information environment. In contrast, we show that cross-country accounting comparability is positively associated with favorable properties of the information environment. We further document that, whereas IFRS adoption increased cross-country earnings comovement, it did not increase accounting comparability relative to a control sample of non-adopting firms. Finally, we show directly that the increases in earnings comovement experienced by IFRS adopters have negative effects on firms’ information environments. This finding provides novel evidence that increases in earnings comovement associated with IFRS adoption diminished financial statement users’ ability to extract information from cross-country firm comparisons.
Number of Pages in PDF File: 56
Keywords: Accounting, IFRS, Regulation, Comparability
JEL Classification: G15, G38, M41working papers series
Date posted: September 15, 2010
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