Investment Allocation Decisions, Home Bias and the Mandatory IFRS Adoption

41 Pages Posted: 19 Mar 2015

See all articles by Mattias Hamberg

Mattias Hamberg

Norwegian School of Economics (NHH)

Taylan Mavruk

University of Gothenburg - Centre for Finance - School of Business, Economics and Law

Stefan Sjögren

University of Gothenburg - Centre for Finance - School of Business, Economics and Law

Date Written: March 18, 2013

Abstract

We examine the familiarity hypothesis of home bias by studying how foreign ownership of Swedish firms is affected by the mandatory adoption of IFRS. We decompose foreign investors into institutional and non-institutional investors. Foreign investors are further decomposed into EU (IFRS adopting countries) and non-EU residents (non-IFRS adopting countries). We analyse the equity investments of these foreign investor groups in Sweden during the period of 2001-2007. We find that after the mandatory adoption of IFRS, foreign ownership/owners from countries that adopted IFRS and particularly those from the EU increased. These effects are particularly strong in small firms. Foreign institutional investors increased their ownership stake after the mandatory IFRS adoption, whereas foreign non-institutional investments were not affected significantly by the IFRS adoption. In contrast to ownership from non-adopting countries, ownership from the EU increased in firms with both more and less tangible assets. Similarly, foreign ownership from the EU increased in firms with both concentrated ownership and dispersed ownership after the adoption. Because Sweden has already had strict legal enforcement and a low level of earnings management prior to the adoption, our results suggest that increased foreign ownership is due to better abilities to compare firms rather than an improved quality.

Keywords: Foreign investments, Home bias, IFRS, Institutional and non-institutional investors

JEL Classification: G11, G15

Suggested Citation

Hamberg, Mattias and Mavruk, Taylan and Sjogren, Stefan, Investment Allocation Decisions, Home Bias and the Mandatory IFRS Adoption (March 18, 2013). Journal of International Money and Finance, Vol. 36, No. C, 2013, Available at SSRN: https://ssrn.com/abstract=2579924

Mattias Hamberg

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

Taylan Mavruk (Contact Author)

University of Gothenburg - Centre for Finance - School of Business, Economics and Law ( email )

Vasagatan 1
Gothenburg, 40530
Sweden

HOME PAGE: http://www.cff.handels.gu.se/faculty-presentation/taylan-mavruk/

Stefan Sjogren

University of Gothenburg - Centre for Finance - School of Business, Economics and Law ( email )

Viktoriagatan 30
Göteborg, 405 30
Sweden

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