Value Relevance of IFRS Mandatory Disclosure Requirements
University of Glasgow - Accounting and Finance Group
University of Stirling
May 20, 2015
Journal of Applied Accounting Research, Vol. 15. Issue 1, 2014 (Highly Commended Paper of 2014)
Purpose: We address recent calls for research regarding the valuation implications of mandatory disclosure requirements (cf. Hassan et al., 2009; Leuz and Wizocki, 2008; Schipper, 2007).
Design: We measure compliance with all IFRS mandatory disclosure requirements for a sample of firms. We subsequently explore whether the compliance scores (i.e. the mandatory disclosure levels) are value relevant and whether the value relevance of accounting numbers differs across high and low compliance/disclosure companies.
Findings: We find that the levels of mandatory disclosures are value relevant. Additionally, not only the relative value relevance (i.e. R2) but also the valuation coefficient of net income of high compliance companies is significantly higher than that of low-compliance companies.
Limitations: This paper is an indicative single country case study that focuses on the IFRS adoption year (2005) in the EU. It forms a new avenue for research regarding the valuation implications of mandatory disclosure requirements. It remains to future research to examine whether our findings also hold in other countries and periods.
Practical implications: These findings are expected to be particularly relevant to standard setters and regulatory bodies who are concerned about the implications of mandatory disclosure requirements (Schipper, 2007).
Originality/value: To the best of our knowledge, this is the first paper that examines the value relevance implications of IFRS mandatory disclosure requirements, focusing on European country after 2005. The findings indicate that IFRS mandatory disclosures do lead to more transparent financial statements (cf. Pownall and Schipper, 1999), mitigating concerns about companies’ fundamentals (cf. Anctil et al., 2004).
Keywords: Value relevance, compliance, IFRS, mandatory disclosures
Date posted: January 7, 2011 ; Last revised: May 21, 2015