Enhanced Disclosures Via IFRS and Stock Price Synchronicity Around the World: Do Analyst Following and Institutional Infrastructure Matter?

Abstract

In this paper, we investigate whether enhanced disclosures via voluntary adoption of International Financial Reporting Standards (IFRS) influence stock price synchronicity or the extent to which firm-specific information is impounded into stock prices. We also study the role of analyst following and institutional infrastructure in determining the relation between IFRS adoption and stock price synchronicity. Our results reveal the following: Enhanced disclosures via IFRS adoption encourage informed traders to collect and trade on private information, which in turn leads to a decrease in stock price synchronicity or an increase in firm-specific return variation. This synchronicity-reducing effect of IFRS adoption is attenuated for firms with high analyst following. Moreover, enhanced disclosures via IFRS adoption encourage private information-based trading to a greater (lesser) extent in countries with poor (good) institutional infrastructures where publicly available, firm-specific information such as accounting disclosures is of low (high) quality.

Keywords: Disclosures, Private information, Analyst coverage, Institutional infrastructure, Stock price synchronicity, IFRS

JEL Classification: G14, G15, M41