26 Pages Posted: 2 Sep 2013 Last revised: 12 Oct 2013
Date Written: October 11, 2013
Barth and Israeli (2013) raise five serious concerns regarding the research design and interpretation of Christensen, Hail, and Leuz (2013). They claim: (i) the evidence stands in stark contrast to Daske, Hail, Leuz, and Verdi (2008) and fails to replicate its prior findings; (ii) the research design using fixed effects leaves out main effects and two-way interactions which likely biases the estimated liquidity effects around IFRS adoption and changes in enforcement; (iii) the vast majority of sample observations do not contribute to the identification which is misleading in terms of the scope and the conclusions that can be drawn from the study; (iv) the timing of IFRS adoption and enforcement changes is measured imprecisely leading to low power tests; and (v) the evidence from Japan is irrelevant to the study. In this note, we show that all five claims are incorrect or misleading. Our discussion also more broadly describes how to properly interpret the fixed-effect specifications in Christensen, Hail, and Leuz (2013). Since studies in accounting, finance, and economics make extensive use of fixed-effect models, a correct understanding of this research design is important to avoid interpretational mistakes. More generally, we discuss that proper empirical identification and inferences are important to international accounting and IFRS studies so that this area of research does not become a market for excuses.
Keywords: Barth and Israeli Discussion, IFRS, Enforcement, International Accounting, Liquidity, Policy Implications, Identification
JEL Classification: G14, G15, G30, K22, M41, M48
Suggested Citation: Suggested Citation
Christensen, Hans Bonde and Hail, Luzi and Leuz, Christian, Proper Inferences or a Market for Excuses? The Capital-Market Effects of Mandatory IFRS Adoption (October 11, 2013). Available at SSRN: https://ssrn.com/abstract=2319475 or http://dx.doi.org/10.2139/ssrn.2319475