The Effect of Mandatory IFRS Adoption on Financial Analysts’ Information Environment
City University of New York (CUNY) - Stan Ross Department of Accountancy
Ying Li Compton
Securities and Exchange Commission; George Washington University - School of Business
University of Texas at Austin
October 16, 2010
Journal of Accounting Research, Forthcoming
This paper examines the effect of the mandatory adoption of International Financial Reporting Standards (IFRS) by the European Union on financial analysts' information environment. To control for the effect of confounding concurrent events, we use a control sample of firms that had already voluntarily adopted IFRS at least two years prior to the mandatory adoption date. We find that analysts' absolute forecast errors and forecast dispersion decrease relative to this control sample only for those mandatory IFRS adopters domiciled in countries with both strong enforcement regimes and domestic accounting standards that differ significantly from IFRS. Further, for mandatory adopters domiciled in countries with both weak enforcement regimes and domestic accounting standards that differ significantly from IFRS, we find that forecast errors and dispersion decrease more for firms with stronger incentives for transparent financial reporting. These results highlight the important roles of enforcement regimes and firm-level reporting incentives in determining the impact of mandatory IFRS adoption.
Number of Pages in PDF File: 38
Keywords: IFRS, Mandatory Adoption, Financial Analysts, Information Environment, Enforcement, Reporting Incentives
JEL Classification: G14, M41
Date posted: October 16, 2010 ; Last revised: November 23, 2010
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