Relevance of Differences Between Net Income Based on IFRS and Domestic Standards for European Firms
Mary E. Barth
Stanford University - Graduate School of Business
Wayne R. Landsman
University of North Carolina (UNC) at Chapel Hill - Accounting Area
Danqing Xu Young
Chinese University of Hong Kong (CUHK) - School of Accountancy
Chinese University of Hong Kong (CUHK) - Faculty of Business Administration
June 6, 2012
We find that the adjustments to net income resulting from mandatory 2005 adoption of IFRS in Europe are relevant to investors in financial as well as non-financial firms. However, we find differences in value relevance of the aggregate net income adjustment and adjustments relating to several individual IFRS standards for these two types of firms and across major country groups, which suggests that differences in institutional features or domestic standards can affect investors’ assessment of the relevance of IFRS accounting amounts. Despite these differences, we find that investors in all firms, except French/German non-financial firms, view net income measured in accordance with IAS 39 Financial Instruments: Recognition and Measurement as more value relevant than net income measured in accordance with domestic standards, which is notable because IAS 39 was highly controversial in Europe.
Number of Pages in PDF File: 52
Keywords: IFRS, Value Relevance, Income Reconciliation, Europe
JEL Classification: M41, G12, G15, G15, G38working papers series
Date posted: May 17, 2011 ; Last revised: September 19, 2012
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