48 Pages Posted: 15 Sep 2009 Last revised: 17 May 2011
Date Written: December 9, 2010
Proponents of International Financial Reporting Standards (IFRS) argue that mandating a uniform set of accounting standards improves financial statement comparability that in turn attracts greater cross-border investment. Our study tests this assertion by examining the change in foreign mutual fund investment in firms that began using IFRS after its mandatory adoption in the European Union (EU) in 2005. We hypothesize that firms experience larger increases in foreign mutual fund ownership when there is a credible increase in uniformity from IFRS adoption. We define a credible increase in uniformity as a large increase in the number of industry peers using the same accounting standards in countries where IFRS is credibly implemented. Consistent with our hypothesis, we find that subsequent to mandatory IFRS adoption, the increase in foreign mutual fund investment is greater among the firms that experience relatively large increases in uniformity and are in countries with strong implementation credibility.
Keywords: Mandatory IFRS adoption, financial statement comparability, cross-border investment
JEL Classification: G15, M41
Suggested Citation: Suggested Citation
DeFond, Mark L. and Hu, Xuesong and Hung, Mingyi and Li, Siqi, The Impact of Mandatory IFRS Adoption on Foreign Mutual Fund Ownership: The Role of Comparability (December 9, 2010). SCU Leavey School of Business Research Paper No. 09-06. Available at SSRN: https://ssrn.com/abstract=1473889 or http://dx.doi.org/10.2139/ssrn.1473889
By Ray Ball