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
Date Written: 2012
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: Suggested Citation