Proper Inferences or a Market for Excuses? The Capital-Market Effects of Mandatory IFRS Adoption

26 Pages Posted: 2 Sep 2013 Last revised: 12 Oct 2013

See all articles by Hans Bonde Christensen

Hans Bonde Christensen

University of Chicago - Booth School of Business

Luzi Hail

University of Pennsylvania - The Wharton School; European Corporate Governance Institute (ECGI)

Christian Leuz

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Leibniz Institute SAFE; CESifo Research Network; Center for Financial Studies (CFS)

Date Written: October 11, 2013

Abstract

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

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

Hans Bonde Christensen

University of Chicago - Booth School of Business ( email )

5807 South Woodlawn Avenue
Chicago, IL 60637
United States

Luzi Hail (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
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215-898-8205 (Phone)
215-573-2054 (Fax)

European Corporate Governance Institute (ECGI) ( email )

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Christian Leuz

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-1996 (Phone)

HOME PAGE: http://faculty.chicagobooth.edu/christian.leuz/

National Bureau of Economic Research (NBER) ( email )

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HOME PAGE: http://www.nber.org

Centre for Economic Policy Research (CEPR) ( email )

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United Kingdom

European Corporate Governance Institute (ECGI)

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Belgium

HOME PAGE: http://www.ecgi.org

Leibniz Institute SAFE ( email )

(http://www.safe-frankfurt.de)
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Germany

CESifo Research Network

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Munich, DE-81679
Germany

Center for Financial Studies (CFS) ( email )

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Frankfurt am Main, 60323
Germany

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