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

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