Abstract

http://ssrn.com/abstract=979650
 
 

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Adopting a Label: Heterogeneity in the Economic Consequences of IFRS Adoptions


Holger Daske


University of Mannheim

Luzi Hail


University of Pennsylvania - The Wharton School

Christian Leuz


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

Rodrigo S. Verdi


Massachusetts Institute of Technology (MIT)

October 31, 2009


Abstract:     
This paper examines market liquidity and cost of capital effects associated with voluntary IFRS adoptions around the world. In contrast to prior work, we focus on the heterogeneity in the economic consequences, recognizing that firms have considerable discretion in how they implement IFRS. Some firms may simply adopt the label, while for others IFRS adoption may be part of a strategy to increase their commitment to transparency. To illustrate these differences, we classify firms into ‘label’ and ‘serious’ adopters using changes in firms’ underlying reporting incentives and actual reporting behavior, and then analyze whether capital markets respond differently around IFRS adoptions. We find that, on average, voluntary IFRS adoptions are not associated with capital market benefits, especially when compared to other forms of commitment such as cross-listing in the U.S. Consistent with our predictions, we find an increase in market liquidity and a decline in the cost of capital for ‘serious’ adopters. These benefits are likely attributable to broader changes in firms’ commitment to transparency, and not just IFRS.

Number of Pages in PDF File: 63

Keywords: International accounting, Reporting incentives, IAS, U.S. GAAP, Disclosure, Cost of equity, Enforcement, IFRS implementation

JEL Classification: G14, G15, G30, K22, M41, M47

working papers series


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Date posted: April 12, 2007 ; Last revised: June 15, 2011

Suggested Citation

Daske, Holger and Hail, Luzi and Leuz, Christian and Verdi, Rodrigo S., Adopting a Label: Heterogeneity in the Economic Consequences of IFRS Adoptions (October 31, 2009). Available at SSRN: http://ssrn.com/abstract=1502413

Contact Information

Holger Daske
University of Mannheim ( email )
Schloss Ostflügel
Raum O 250
Mannheim, D-68131
Germany
Luzi Hail (Contact Author)
University of Pennsylvania - The Wharton School ( email )
3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-8205 (Phone)
215-573-2054 (Fax)
Christian Leuz
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-1996 (Phone)
HOME PAGE: http://chicagobooth.edu/fac/christian.leuz
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
HOME PAGE: http://www.nber.org
European Corporate Governance Institute (ECGI)
Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Center for Financial Studies (CFS) ( email )
Grüneburgplatz 1
Frankfurt am Main, 60323
Germany
University of Pennsylvania - Wharton Financial Institutions Center
3641 Locust Walk
Philadelphia, PA 19104-6218
United States
CESifo Research Network
Poschinger Str. 5
Munich, DE-81679
Germany
Rodrigo S. Verdi
Massachusetts Institute of Technology (MIT) ( email )
Sloan School of Management
100 Main Street E62-679
Cambridge, MA 02142
United States
(617) 253 2956 (Phone)
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