Mandatory IFRS Reporting and Changes in Enforcement
Hans Bonde Christensen
University of Chicago - Booth School of Business
University of Pennsylvania - The Wharton School
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Center for Financial Studies (CFS); University of Pennsylvania - Wharton Financial Institutions Center; CESifo Research Network
February 28, 2013
The Wharton School Research Paper
Chicago Booth Research Paper No. 12-12
In recent years, reporting under International Financial Reporting Standards (IFRS) became mandatory in many countries. The capital-market effects around this change have been extensively studied, but their sources are not yet well understood. This study aims to distinguish between several potential explanations for the observed capital-market effects. We find that, across all countries, mandatory IFRS reporting had little impact on liquidity. The liquidity effects around IFRS introduction are concentrated in the European Union (EU) and limited to five EU countries that concurrently made substantive changes in reporting enforcement. There is little evidence of liquidity benefits in IFRS countries without substantive enforcement changes even when they have strong legal and regulatory systems. Moreover, we find similar liquidity effects for firms that experience enforcement changes but do not concurrently switch to IFRS. Thus, it is questionable that the liquidity effects can be attributed to the change in accounting standards. The results indicate that changes in reporting enforcement play a critical role for the observed liquidity benefits after IFRS reporting became mandatory.
Number of Pages in PDF File: 64
Keywords: International accounting, IFRS implementation, Regulation, Enforcement, Liquidity, European Union
JEL Classification: G14, G15, G30, K22, M41, M48working papers series
Date posted: March 7, 2012 ; Last revised: March 5, 2013
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