The Impact of Mandatory IFRS Adoption on Foreign Mutual Fund Ownership: The Role of Comparability

48 Pages Posted: 15 Sep 2009 Last revised: 17 May 2011

Mark L. DeFond

University of Southern California - Leventhal School of Accounting

Xuesong Hu

University of Oregon - Department of Accounting

Mingyi Hung

Hong Kong University of Science & Technology (HKUST)

Siqi Li

Santa Clara University - Leavey School of Business

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Date Written: December 9, 2010

Abstract

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

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

Mark DeFond

University of Southern California - Leventhal School of Accounting ( email )

Accounting Building, Room 206
Los Angeles, CA 90089-0441
United States
213-740-5016 (Phone)
213-747-2815 (Fax)

Xuesong Hu

University of Oregon - Department of Accounting ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States

Mingyi Hung (Contact Author)

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon
Hong Kong

Siqi Li

Santa Clara University - Leavey School of Business ( email )

500 El Camino Real
Santa Clara, CA 95053
United States

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