Relevance of Differences Between Net Income Based on IFRS and Domestic Standards for European Firms

52 Pages Posted: 17 May 2011 Last revised: 17 Aug 2013

See all articles by Mary E. Barth

Mary E. Barth

Stanford University - Graduate School of Business

Wayne R. Landsman

University of North Carolina Kenan-Flagler Business School

Danqing Young

The Chinese University of Hong Kong (CUHK) - School of Accountancy

Zili Zhuang

The Chinese University of Hong Kong (CUHK) - Faculty of Business Administration

Multiple version iconThere are 2 versions of this paper

Date Written: June 6, 2012

Abstract

We find that the adjustments to net income resulting from mandatory 2005 adoption of IFRS in Europe are relevant to investors in financial as well as non-financial firms. However, we find differences in value relevance of the aggregate net income adjustment and adjustments relating to several individual IFRS standards for these two types of firms and across major country groups, which suggests that differences in institutional features or domestic standards can affect investors’ assessment of the relevance of IFRS accounting amounts. Despite these differences, we find that investors in all firms, except French/German non-financial firms, view net income measured in accordance with IAS 39 Financial Instruments: Recognition and Measurement as more value relevant than net income measured in accordance with domestic standards, which is notable because IAS 39 was highly controversial in Europe.

Keywords: IFRS, Value Relevance, Income Reconciliation, Europe

JEL Classification: M41, G12, G15, G15, G38

Suggested Citation

Barth, Mary E. and Landsman, Wayne R. and Young, Danqing Xu and Zhuang, Zili, Relevance of Differences Between Net Income Based on IFRS and Domestic Standards for European Firms (June 6, 2012). Available at SSRN: https://ssrn.com/abstract=1837003 or http://dx.doi.org/10.2139/ssrn.1837003

Mary E. Barth (Contact Author)

Stanford University - Graduate School of Business ( email )

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Stanford, CA 94305-5015
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Wayne R. Landsman

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-3221 (Phone)
919-962-4727 (Fax)

Danqing Xu Young

The Chinese University of Hong Kong (CUHK) - School of Accountancy ( email )

Shatin, N.T.
Hong Kong
+852 2609 7892 (Phone)
+852 2603 5114 (Fax)

Zili Zhuang

The Chinese University of Hong Kong (CUHK) - Faculty of Business Administration ( email )

Shatin N.T.
Hong Kong

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