The Market Reaction to SEC IFRS-Related Announcements: The Case of American Depository Receipt (ADR) Firms in the U.S.

47 Pages Posted: 3 Apr 2014  

Jenice J. Prather-Kinsey

University of Alabama at Birmingham

Paul Tanyi

University of North Carolina (UNC) at Charlotte - Department of Accounting

Date Written: April 2, 2014

Abstract

The objective of our study is to test whether the adoption of International Financial Reporting Standards (IFRS) in the United States (U.S.) is perceived positively by American Depository Receipt (ADR) firms’ equity market participants. We conduct our tests by studying market reactions to the Securities and Exchange Commission’s (SEC) IFRS-related press releases between 2007 and 2011 regarding potential adoption of IFRS in the U.S. Using a sample of ADR firms and multivariate regression analyses, we test the 3-day cumulative abnormal returns (CAR) of investors of ADR firms in response to SEC announcements on potential IFRS adoption. We find a significant and positive market reaction to the SEC’s announcements related to the potential adoption of IFRS in the U.S. for ADR firms reporting their financial statements using IFRS, especially in the industry where IFRS is the globally predominant accounting standard. Conversely, we find a significantly negative market reaction to SEC related announcements of potential adoption of IFRS in the U.S. for ADR firms currently reporting their financial statements using U.S. generally accepted accounting principles (GAAP). We conclude that the SEC’s adoption of IFRS may benefit global and U.S. equity market participants relative to Local GAAP reporting (reporting using domestic GAAP that is not IFRS or U.S. GAAP) by providing a common basis for investors, issuers and others to evaluate investment opportunities.

Keywords: IFRS adoption, ADR firms, market reaction

JEL Classification: M41

Suggested Citation

Prather-Kinsey, Jenice J. and Tanyi, Paul, The Market Reaction to SEC IFRS-Related Announcements: The Case of American Depository Receipt (ADR) Firms in the U.S. (April 2, 2014). Accounting Horizons, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2419514 or http://dx.doi.org/10.2139/ssrn.2419514

Jenice J. Prather-Kinsey

University of Alabama at Birmingham ( email )

Birmingham, AL 35294-4460
United States

Paul Tanyi (Contact Author)

University of North Carolina (UNC) at Charlotte - Department of Accounting ( email )

9201 University City Blvd
Charlotte, NC 28223
United States

Paper statistics

Downloads
172
Rank
142,303
Abstract Views
537