Do IFRS Based Earnings Announcements Have More Information Content than Canadian GAAP Based Earnings Announcements?

33 Pages Posted: 16 Jan 2014

See all articles by Shahid Khan

Shahid Khan

Pennsylvania State University

Mark C. Anderson

University of Calgary - Haskayne School of Business

Hussein A. Warsame

University of Calgary

Date Written: January 15, 2014

Abstract

Using event study methodology in a Canadian setting, this paper investigates whether the information content of earnings announcements increased for Canadian Venture Exchange (TSXV) firms and Toronto Stock Exchange (TSX) firms following mandatory adoption of international financial reporting standards (IFRS) in Canada. Comparing the two exchanges is interesting because there is generally more information asymmetry between investors and TSXV firms than between investors and TSX firms. A priori, it may be argued that there would be higher information content in the IFRS based earnings announcements for both TSXV and TSX exchange firms in Canada as compared to the Canadian GAAP based earnings announcements because IFRS allows greater flexibility to provide relevant information. If IFRS enables higher transfer of information through earnings announcements, this may benefit investors in TSXV firms more than investors in TSX firms. However, the additional flexibility to provide relevant information in the IFRS-based annual earnings announcements might reduce reliability by increasing uncertainty in the information of the earnings announcements. Our findings indicate that the information content, measured by abnormal stock return volatility and abnormal trading volume during the announcement period, decreased following the adoption of IFRS for both TSXV firms and TSX firms. The results of this study are relevant for US policy makers in their decision to implement IFRS.

Keywords: Information content, IFRS, Financial Accounting

JEL Classification: M41

Suggested Citation

Khan, Shahid and Anderson, Mark C. and Warsame, Hussein A., Do IFRS Based Earnings Announcements Have More Information Content than Canadian GAAP Based Earnings Announcements? (January 15, 2014). 2014 Canadian Academic Accounting Association (CAAA) Annual Conference, Available at SSRN: https://ssrn.com/abstract=2379921 or http://dx.doi.org/10.2139/ssrn.2379921

Shahid Khan (Contact Author)

Pennsylvania State University ( email )

Berks Campus
Reading, PA 16802
United States

Mark C. Anderson

University of Calgary - Haskayne School of Business ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada
403-220-3926 (Phone)

Hussein A. Warsame

University of Calgary ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada

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