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The Effect of IFRS on Cross-Border Acquisitions

44 Pages Posted: 21 Oct 2012 Last revised: 4 Jun 2015

Henock Louis

Pennsylvania State University - Smeal College of Business

Oktay Urcan

University of Illinois at Urbana-Champaign

Date Written: July 1, 2014

Abstract

We examine whether the 2005 mandatory adoption of IFRS is followed by an increase in cross-border acquisitions into the adopting countries and whether the association is driven by IFRS per se or by concurrent enforcement changes. Using the exogeneity of a firm’s listing status to identify the effect of IFRS, we document a significant increase in cross-border acquisitions of listed targets from the adopting countries. We find no evidence that the IFRS effect is driven by those countries that apparently bundled the IFRS adoption with enforcement changes. The evidence also suggests that the IFRS effect is likely due to the fact that many different countries use a common reporting system, as opposed to improvement in reporting quality at individual firms. In particular, we find that the increase in investment flow into the IFRS adopting countries comes mainly from other adopting countries and is significantly stronger when the increase in reporting uniformity associated with IFRS is higher. We also find no evidence that firms that voluntarily adopted IFRS prior to the mandatory adoption were more likely to become cross-border acquisition targets.

Keywords: IFRS, foreign direct investments, M&A, cross-border acquisitions

JEL Classification: F21, G34, M41

Suggested Citation

Louis, Henock and Urcan, Oktay, The Effect of IFRS on Cross-Border Acquisitions (July 1, 2014). Available at SSRN: https://ssrn.com/abstract=2164995 or http://dx.doi.org/10.2139/ssrn.2164995

Henock Louis (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

University Park, PA 16802-3306
United States
814-865-4160 (Phone)
814-863-8393 (Fax)

Oktay Urcan

University of Illinois at Urbana-Champaign ( email )

515 E. Gregory Drive
4009 BIF MC-520
Champaign, IL 61820
United States
217-265-0383 (Phone)
217-244-0902 (Fax)

HOME PAGE: http://business.illinois.edu/profile/oktay-urcan/

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