How IFRS Affects Value Relevance and Key Financial Indicators? Evidence from the UK

International Review of Accounting, Banking and Finance, Vol.7, No.1, pp.73-96

24 Pages Posted: 15 Feb 2014 Last revised: 5 Jan 2016

Date Written: March 1, 2015

Abstract

This paper has two contributions to the International Financial Reporting Stands (IFRS) adoption literature. First is the scrutinizing impact of IFRS adoption on value relevance in the UK with TEST-A analysis under the H01 hypothesis. The second contribution is capturing the impact of IFRS adoption on key financial indicators of firms with the TEST-B analysis that hypothesizes H02. The statistical differences of items of two different reporting standards are examined with non-parametric tests as all input variables failed the Shapiro-Wilk and Lilliefors normality tests in TEST-A. The finding rejects the H01 hypothesis for BvMv, and agrees that IFRS has impact on value relevance. Besides, Ohlson’s (1995) model documents that the coefficient of dummy variable (MODE) is positive. Therefore, the analysis concludes that IFRS has positive impact on value relevance. The aftermath of TEST-B rejects the H02 hypothesis for all profitability ratios (ROE, ROCE, ROA, PM) and gearing ratios (GR). It concludes that profitability and gearing ratios are affected by IFRS adoption, whereas efficiency-liquidity ratios are not. Also, in Forward Stepwise regression analysis only ROCE, ROA, and PM ratios show significant results. The analysis documents positive and significant impact of IFRS on these three ratios.

Keywords: IFRS, UK GAAP, IFRS Adoption, Value Relevance

JEL Classification: M41, M48

Suggested Citation

Sovbetov, Yhlas, How IFRS Affects Value Relevance and Key Financial Indicators? Evidence from the UK (March 1, 2015). International Review of Accounting, Banking and Finance, Vol.7, No.1, pp.73-96. Available at SSRN: https://ssrn.com/abstract=2394507 or http://dx.doi.org/10.2139/ssrn.2394507

Yhlas Sovbetov (Contact Author)

London School of Commerce ( email )

London
United Kingdom

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