The Effect of IFRS Adoption on Accounting Quality and Market Liquidity: The Impact of Family Control

37 Pages Posted: 25 Jan 2014 Last revised: 30 Apr 2018

See all articles by Sidney Leung

Sidney Leung

City University of Hong Kong (CityUHK) - Department of Accountancy

Greg Clinch


Date Written: January 3, 2014


Previous studies suggest that firm-level reporting incentives play a significant role for heterogeneous effects on the adoption of International Financial Reporting Standards (IFRS) (e.g., Daske et al., 2013; Ball et al., 2003; Leuz et al., 2003; Burgstahler et al., 2006). In this study, we focus on family ownership control, which arguably creates severe agency problems between controlling and minority shareholders as well as weaker incentives for quality financial reporting and transparency. We examine whether the effect of full IFRS adoption on accounting quality and market liquidity is significantly mitigated by family control by comparing accounting quality metrics and market liquidity metrics between family-controlled and non-family-controlled firms listed in Hong Kong for the period before mandatory IFRS adoption and the period after adoption. We show that accounting quality and market liquidity generally improve after full IFRS adoption. However, when we take into consideration of family control, higher accounting quality in the post-IFRS period is only substantiated in the non-family-controlled firms. The accounting quality actually gets worse in the post-IFRS period for family-controlled firms. We also find that improvements in market liquidity after the adoption of IFRS are moderated by family control. The results indicate that the expected benefits of IFRS adoption are realised in non-family-controlled firms, but such desirable outcomes are severely moderated by family ownership control. Given that family control is a common phenomenon in Asia and other emerging economies, our findings are useful for policy makers and investors to better understand the impact of IFRS adoption.

Keywords: IFRS adoption, accounting quality, market liquidity, family ownership, family

JEL Classification: G32, M41, G38

Suggested Citation

Leung, Sidney and Clinch, Greg, The Effect of IFRS Adoption on Accounting Quality and Market Liquidity: The Impact of Family Control (January 3, 2014). 2014 Financial Markets & Corporate Governance Conference. Available at SSRN: or

Sidney Leung (Contact Author)

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Hong Kong
+852 2788-7924 (Phone)
+852 2788-7944 (Fax)

Greg Clinch


No Address Available

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