Are Liquidity Improvements Around the Mandatory Adoption of IFRS Attributable to Comparability Effects or to Quality Effects?

39 Pages Posted: 3 Sep 2009 Last revised: 10 Dec 2012

See all articles by Michael S. Drake

Michael S. Drake

Brigham Young University - Marriott School

Linda A. Myers

University of Tennessee, Haslam College of Business, Accounting and Information Management

Lijie Yao

Beijing Jiaotong University

Date Written: September 2010

Abstract

Using a treatment sample of more than 5,000 firms from 22 countries that required reporting under International Financial Reporting Standards (IFRS) on or before fiscal 2005, we find an increase in aggregate market liquidity around mandatory IFRS reporting. We examine whether the positive market effect on liquidity of mandatory IFRS reporting is attributable to the convergence of diverse accounting standards into a single set of accounting standards (i.e., Comparability Effects), to improved financial reporting quality (i.e., Quality Effects), or both. We find evidence suggesting that liquidity improvements are attributable to increased comparability. In addition, we find that the Quality Effect around the IFRS mandate is generally negative, suggesting that the markets in our sample behave as if the mandatory adoption of IFRS will not increase financial reporting quality (beyond domestic generally accepted accounting principles) in most sample countries.

Keywords: IFRS, Market Liquidity, Comparability, Accounting Quality

JEL Classification: G14, G15, G30, M41

Suggested Citation

Drake, Michael S. and Myers, Linda A. and Yao, Lijie, Are Liquidity Improvements Around the Mandatory Adoption of IFRS Attributable to Comparability Effects or to Quality Effects? (September 2010). AAA 2010 Financial Accounting and Reporting Section (FARS) Paper, Available at SSRN: https://ssrn.com/abstract=1466353 or http://dx.doi.org/10.2139/ssrn.1466353

Michael S. Drake (Contact Author)

Brigham Young University - Marriott School ( email )

United States

Linda A. Myers

University of Tennessee, Haslam College of Business, Accounting and Information Management ( email )

Knoxville, TN
United States

Lijie Yao

Beijing Jiaotong University ( email )

No.3 of Shangyuan Residence Haidian District
Beijing, 100089
China

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