Does Mandatory IFRS Adoption Affect Crash Risk?

The Accounting Review, Forthcoming

50 Pages Posted: 29 Nov 2011 Last revised: 5 Jan 2015

See all articles by Mark L. DeFond

Mark L. DeFond

University of Southern California - Leventhal School of Accounting

Mingyi Hung

Hong Kong University of Science & Technology (HKUST)

Siqi Li

Santa Clara University - Leavey School of Business

Yinghua Li

Arizona State University (ASU) - School of Accountancy

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2011

Abstract

We examine the impact of mandatory IFRS adoption on firm-level “crash risk,” defined as the frequency of extreme negative stock returns. An important feature of our study is that we separately analyze industrial firms and firms in finance-related industries. This is important because IFRS adoption is likely to affect industrial firms through different mechanisms than financial firms, and as a result may affect crash risk differently. We find that for companies in poor information environments, crash risk decreases among industrial firms and increases among financial firms after the IFRS mandate. We also find that crash risk decreases relatively more among industrial firms where IFRS results in more credible changes to local GAAP, and that crash risk increases relatively more among banks with less restrictive regulations. In addition, we find that earnings volatility declines after IFRS adoption for industrial firms but increases for financial firms. Overall, our findings are consistent with mandatory IFRS adoption decreasing crash risk among industrial firms by improving reporting quality, and increasing crash risk among financial firms by inducing greater volatility and affording more opportunities for manipulation.

Suggested Citation

DeFond, Mark and Hung, Mingyi and Li, Siqi and Li, Yinghua, Does Mandatory IFRS Adoption Affect Crash Risk? (October 1, 2011). The Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1966114 or http://dx.doi.org/10.2139/ssrn.1966114

Mark DeFond (Contact Author)

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)

Mingyi Hung

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

Clearwater Bay
Kowloon, 999999
Hong Kong

Siqi Li

Santa Clara University - Leavey School of Business ( email )

500 El Camino Real
Santa Clara, CA 95053
United States

Yinghua Li

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States
480-965-5188 (Phone)

HOME PAGE: http://wpcarey.asu.edu/people/profile/2386522

Register to save articles to
your library

Register

Paper statistics

Downloads
702
rank
34,721
Abstract Views
2,819
PlumX Metrics