Does Mandatory IFRS Adoption Affect Crash Risk?

Posted: 5 Jan 2015 Last revised: 14 Mar 2015

See all articles by Mark L. DeFond

Mark L. DeFond

University of Southern California - Leventhal School of Accounting

Mingyi Hung

Hong Kong University of Science & Technology (HKUST)

Siqi Li

Santa Clara University - Leavey School of Business

Yinghua Li

Arizona State University (ASU) - School of Accountancy

Multiple version iconThere are 2 versions of this paper

Date Written: January 4, 2015

Abstract

We test whether mandatory IFRS adoption affects firm-level ‘crash risk,’ defined as the frequency of extreme negative stock returns. We separately analyze non-financial firms and financial firms because IFRS is likely to affect their crash risk differently. We find that IFRS adoption decreases crash risk among non-financial firms, especially among firms in poor information environments and in countries where IFRS adoption results in larger and more credible changes to local GAAP. In contrast, IFRS adoption has no effect on crash risk for financial firms, on average, but decreases crash risk among firms less affected by IFRS’s fair value provisions, and increases crash risk among banks in countries with weak banking regulations. Overall, our results are consistent with the increased transparency from IFRS adoption broadly reducing crash risk among non-financial firms, but more selectively among financial firms, and with financial regulations playing a complementary role in implementing IFRS among financial firms.

Keywords: International Financial Reporting Standards; Crash risk; Non-financial firms; Financial firms

Suggested Citation

DeFond, Mark and Hung, Mingyi and Li, Siqi and Li, Yinghua, Does Mandatory IFRS Adoption Affect Crash Risk? (January 4, 2015). The Accounting Review, Vol. 90, pp. 265–299, 2015.. Available at SSRN: https://ssrn.com/abstract=2545079

Mark DeFond

University of Southern California - Leventhal School of Accounting ( email )

Accounting Building, Room 206
Los Angeles, CA 90089-0441
United States
213-740-5016 (Phone)
213-747-2815 (Fax)

Mingyi Hung

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

Siqi Li (Contact Author)

Santa Clara University - Leavey School of Business ( email )

500 El Camino Real
Santa Clara, CA 95053
United States

Yinghua Li

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States
480-965-5188 (Phone)

HOME PAGE: http://wpcarey.asu.edu/people/profile/2386522

Register to save articles to
your library

Register

Paper statistics

Abstract Views
817
PlumX Metrics