Which Analysts Benefited Most from Mandatory IFRS Adoption in Europe?
Journal of International Accounting Research, Forthcoming
This paper is a significantly revised version of the paper titled "Mandatory Adoption of IFRS and Analysts’ Forecasts Information Properties", and which was known as CentER Discussion Paper Series No. 2010-112.
Posted: 9 Nov 2010 Last revised: 18 Aug 2017
Date Written: August 17, 2017
Abstract
This study examines whether financial analysts’ research structure and portfolio selection choices helped in improving relative earnings forecast accuracy around mandatory IFRS adoption in Europe. Using a sample of 68,665 one-year ahead forecasts for 1,980 publicly listed firms, we find that market-wide mandatory IFRS adoption in the European Union resulted in a significant improvement in the relative forecast accuracy of sector specialists compared to generalists, while country specialists retained a relative accuracy advantage independent of the period of study. Moreover, sector specialists outperformed generalists especially for firms with large local GAAP to IFRS income reconciliations in the first-time IFRS adoption year and when analysts’ research portfolios prior to IFRS adoption exhibited high variability in local GAAP reporting practices. Additional analysis indicates that IFRS enabled analysts to initiate coverage of more firms, especially smaller ones, in their sector of specialization. Overall, our results are consistent with the notion that mandatory IFRS adoption in Europe reduced information processing costs and enlarged the within-industry valuation scope.
Keywords: relative forecast accuracy; mandatory IFRS adoption; analyst specialization
JEL Classification: G15, M41
Suggested Citation: Suggested Citation
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