How do Individual Investors React to Global IFRS Adoption?
Humboldt University of Berlin - School of Business and Economics
University of Mannheim - Accounting and Taxation
University of Cologne
Peter F. Pope
London School of Economics
August 1, 2012
AAA 2010 Financial Accounting and Reporting Section (FARS) Paper
We examine the impact of global IFRS adoption on cross-border equity investments by individual investors. Our proxy for cross-border equity investments is trading volume in the Open Market at Frankfurt Stock Exchange. The Open Market is a segment designed for German individual investors to trade a large selection of foreign stocks. Using a sample of 5,637 firms from 31 countries around the world, we find that stocks experience a significant increase in Open Market trading volume following mandatory adoption of IFRS. This effect is more pronounced for attention-grabbing stocks (e.g., stocks experiencing an increase in media coverage following IFRS adoption). Our results suggest that global IFRS adoption enhances cross-border equity investments by individual investors. However, this effect does not materialize equally across stocks due individual investors’ limited attention.
Number of Pages in PDF File: 52
Keywords: Individual Investors, International Accounting, IFRS, Open Market, Cross-Border Investments
JEL Classification: G14, G38, K22, M41, M48
Date posted: August 22, 2009 ; Last revised: August 2, 2012