69 Pages Posted: 7 Mar 2012 Last revised: 6 Apr 2015
Date Written: November 4, 2013
In recent years, reporting under International Financial Reporting Standards (IFRS) became mandatory in many countries. The capital-market effects around this change have been extensively studied, but their sources are not yet well understood. This study aims to distinguish between several potential explanations for the observed capital-market effects. We find that, across all countries, mandatory IFRS reporting had little impact on liquidity. The liquidity effects around IFRS introduction are concentrated in the European Union (EU) and limited to five EU countries that concurrently made substantive changes in reporting enforcement. There is little evidence of liquidity benefits in IFRS countries without substantive enforcement changes even when they have strong legal and regulatory systems. Moreover, we find similar liquidity effects for firms that experience enforcement changes but do not concurrently switch to IFRS. Thus, changes in reporting enforcement or (unobserved) factors associated with these changes play a critical role for the observed liquidity benefits after mandatory IFRS adoption. In contrast, the change in accounting standards seems to have had little effect on market liquidity.
Keywords: International accounting, IFRS implementation, Regulation, Enforcement, Liquidity, European Union
JEL Classification: G14, G15, G30, K22, M41, M48
Suggested Citation: Suggested Citation
Christensen, Hans Bonde and Hail, Luzi and Leuz, Christian, Mandatory IFRS Reporting and Changes in Enforcement (November 4, 2013). ECGI - Finance Working Paper No. 377/2013; The Wharton School Research Paper; Chicago Booth Research Paper No. 12-12. Available at SSRN: https://ssrn.com/abstract=2017160 or http://dx.doi.org/10.2139/ssrn.2017160
By Ray Ball