Earnings Comovement and Accounting Comparability: The Effects of Mandatory IFRS Adoption

55 Pages Posted: 15 Sep 2010 Last revised: 15 Aug 2016

Mark H. Lang

University of North Carolina at Chapel Hill

Mark G. Maffett

University of Chicago - Booth School of Business

Edward L. Owens

Emory University - Department of Accounting

Date Written: September 14, 2010

Abstract

We examine changes in cross-country financial statement comparability around mandatory IFRS adoption and the effects of these changes on firms’ information environments, as captured by analyst properties and bid-ask spreads. First, we show that cross-country earnings comovement is negatively associated with favorable properties of the firm-level information environment. In contrast, we show that cross-country accounting comparability is positively associated with favorable properties of the information environment. We further document that, whereas IFRS adoption increased cross-country earnings comovement, it did not increase accounting comparability relative to a control sample of non-adopting firms. Finally, we show directly that the increases in earnings comovement experienced by IFRS adopters have negative effects on firms’ information environments. This finding provides novel evidence that increases in earnings comovement associated with IFRS adoption diminished financial statement users’ ability to extract information from cross-country firm comparisons.

Keywords: Accounting, IFRS, Regulation, Comparability

JEL Classification: G15, G38, M41

Suggested Citation

Lang, Mark H. and Maffett, Mark G. and Owens, Edward L., Earnings Comovement and Accounting Comparability: The Effects of Mandatory IFRS Adoption (September 14, 2010). Simon School Working Paper No. FR 11-03. Available at SSRN: https://ssrn.com/abstract=1676937 or http://dx.doi.org/10.2139/ssrn.1676937

Mark H. Lang

University of North Carolina at Chapel Hill ( email )

Kenan-Flagler Business School
McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-1644 (Phone)
919-962-4727 (Fax)

Mark G. Maffett (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Edward L. Owens

Emory University - Department of Accounting ( email )

Goizueta Business School
1300 Clifton Road
Atlanta, GA 30322
United States

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