Market Reaction to the Adoption of IFRS in Europe

52 Pages Posted: 10 Sep 2008 Last revised: 4 Apr 2012

Chris Armstrong

University of Pennsylvania - Accounting Department

Mary E. Barth

Stanford University - Graduate School of Business

Alan D. Jagolinzer

University of Colorado - Leeds School of Business

Edward J. Riedl

Boston University - Questrom School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: April 20, 2009

Abstract

This study examines European stock market reactions to 16 events associated with the adoption of International Financial Reporting Standards (IFRS) in Europe. European IFRS adoption represented a major milestone towards financial reporting convergence yet spurred controversy reaching the highest levels of government. We find an incrementally positive reaction for firms with lower quality pre-adoption information, which is more pronounced in banks, and with higher pre-adoption information asymmetry, consistent with investors expecting net information quality benefits from IFRS adoption. We find an incrementally negative reaction for firms domiciled in code law countries, consistent with investors’ concerns over enforcement of IFRS in those countries. Finally, we find a positive reaction to IFRS adoption events for firms with high quality pre-adoption information, consistent with investors expecting net convergence benefits from IFRS adoption.

Keywords: IFRS, IAS 39, Convergence, Europe

JEL Classification: M41, G15, G38

Suggested Citation

Armstrong, Chris and Barth, Mary E. and Jagolinzer, Alan D. and Riedl, Edward J., Market Reaction to the Adoption of IFRS in Europe (April 20, 2009). Accounting Review, Forthcoming; Harvard Business School Finance Working Paper No. 09-032; Rock Center for Corporate Governance at Stanford University Working Paper No. 5. Available at SSRN: https://ssrn.com/abstract=1265032

Chris S. Armstrong

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Mary E. Barth

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-9040 (Phone)
650-725-0468 (Fax)

Alan D. Jagolinzer

University of Colorado - Leeds School of Business ( email )

419 UCB
Boulder, CO 80309-0419
United States

Edward J. Riedl (Contact Author)

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States
617-353-2317 (Phone)

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