Trading Volume Reaction to the Earnings Reconciliation from IFRS to U.S. GAAP: Further Evidence
Posted: 24 Apr 2009
Date Written: April 21, 2009
The U.S. SEC approved in December 2007 to accept financial statements prepared under IFRS as issued by the IASB without reconciliation to U.S. GAAP for foreign firms. Using a sample of foreign firms that use IFRS and reconcile to U.S. GAAP from 2005 to 2006, we find that earnings reconciliation from IFRS to U.S. GAAP is positively and significantly associated with abnormal trading volume in the U.S. markets around the Form 20-F filing dates. We also document that the trading volume reaction in the U.S. markets is weaker for firms that use IFRS as issued by the IASB than for firms that use other versions of IFRS. Moreover, the trading volume reaction in the U.S. markets exists for firms with low institutional holdings and for first-time IFRS filers but disappears for firms with high institutional holdings and for continuous IFRS filers. Furthermore, we do not find any evidence that earnings reconciliation is significantly associated with abnormal trading volume in the local markets for the full sample and for any partitioned sample. Our evidence is of interest to the SEC when evaluating the effectiveness of its no-reconciliation rule and considering allowing U.S. domestic firms to prepare financial statements under IFRS.
Keywords: earnings reconciliation, IFRS, trading volume reaction
JEL Classification: M41, M44, G15
Suggested Citation: Suggested Citation