Externalities of Mandatory IFRS Adoption: Evidence from Cross-Border Spillover Effects of Financial Information on Investment Efficiency

50 Pages Posted: 13 Sep 2012 Last revised: 26 Oct 2012

See all articles by Chen Chen

Chen Chen

Monash University - Department of Accounting

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

Date Written: September 13, 2012

Abstract

This study examines the externalities of mandatory IFRS adoption on firms’ investment efficiency in 17 European countries. Using the ROA difference between the firm and its peers to proxy for the information on the peers’ investment performance, we find that the spillover effect of a firm’s ROA difference versus its foreign peers, but not domestic peers, on the firm’s investment efficiency increases after IFRS adoption. We also find that increased disclosure by both foreign and domestic peers after IFRS adoption has a spillover effect on a firm’s investment efficiency. Further, a firm’s investment changes induced by its ROA difference versus foreign peers are more value relevant after IFRS adoption, and those induced by increased disclosure by foreign peers under IFRS are value relevant. Additional analyses reveal that our results are affected by legal enforcement strength, peer composition, and industry competition. Overall, we document positive externalities of mandatory IFRS adoption.

Keywords: externalities,cross-border spillover effects, investment efficiency, information comparability, IFRS adoption

Suggested Citation

Chen, Chen and Young, Danqing Xu and Zhuang, Zili, Externalities of Mandatory IFRS Adoption: Evidence from Cross-Border Spillover Effects of Financial Information on Investment Efficiency (September 13, 2012). Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2145730 or http://dx.doi.org/10.2139/ssrn.2145730

Chen Chen

Monash University - Department of Accounting ( email )

Building H, Level 3
Caulfield campus
Melbourne, Victoria 3800
Australia

Danqing Xu Young (Contact Author)

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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