Economic Consequences of the First-Time IFRS Introduction in Europe

Spanish Journal of Accounting & Finance, Vol. 156, p. 497-519, 2012

37 Pages Posted: 9 Aug 2007 Last revised: 6 May 2015

Petya Platikanova

ESADE - Ramon Llull University

Jordi Perramon

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Date Written: 2012

Abstract

Advocates of mandatory IFRS adoption claim that IFRS increases financial statement comparability and enhances the quality of financial disclosure, which in turn leads to more liquid markets. Using first-time disclosure (IFRS restatements), this study tests empirically this assertion by examining whether IFRS adoption by representative European countries results in more liquid markets. We propose that IFRS introduction can directly affect market liquidity by improving comparability. Our findings suggest that, at the industry level, larger restatements in net income increase uncertainty among investors, and by extension stock illiquidity. For industries with fewer restating peers, lack of information comparability additionally suppresses investment activities with larger liquidity costs.

Keywords: accounting reconcilations, IFRS, market liquidity

JEL Classification: M41, M44, M47, G15, G14

Suggested Citation

Platikanova, Petya and Perramon, Jordi, Economic Consequences of the First-Time IFRS Introduction in Europe (2012). Spanish Journal of Accounting & Finance, Vol. 156, p. 497-519, 2012. Available at SSRN: https://ssrn.com/abstract=1005364 or http://dx.doi.org/10.2139/ssrn.1005364

Petya Platikanova (Contact Author)

ESADE - Ramon Llull University ( email )

Avenguda de Pedralbes 60
Barcelona, 08034
Spain

Jordi Perramon

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
3493 542-1753 (Phone)
3493 542-1746 (Fax)

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