Did Mandatory Adoption of IFRS Increase Liquidity in the Canadian Stock Markets?

54 Pages Posted: 18 Jan 2016 Last revised: 18 Jan 2017

See all articles by Shahid Khan

Shahid Khan

Pennsylvania State University

Date Written: January 15, 2016


In this study, we investigate whether average liquidity for non-U.S. firms traded on Canadian stock exchanges increased or decreased after mandatory adoption of IFRS in Canada. We consider two competing forces affecting liquidity from IFRS adoption: enhanced comparability of firms within industries that span international boundaries and less tailoring of financial reporting to satisfy local investor needs. We find that liquidity decreased for Canadian and non-U.S. international firms traded on the Canadian exchanges, suggesting that the benefits of global comparability were not sufficient to offset the loss of local investor accommodation. To provide perspective on these results for Canadian exchanges, we also compare liquidity before and after IFRS adoption for firms traded on the U.K. and Australian exchanges. These three countries share the British influence on financial reporting historically and have similar legal and institutional settings. We expect that the benefits of global comparability would be relatively greater for the U.K. exchanges relative to the Canadian and Australian exchanges given the U.K.’s proximity and commerce with other European countries. We find that liquidity increased for the U.K. exchanges but decreased for the Australian exchange, supporting the interpretation of the Canadian findings. We also compare changes in liquidity between the two Canadian exchanges, the more global and senior Toronto Stock Exchange (TSX) and the more local and retail-oriented TSX Venture Exchange (TSXV). We find that the decrease in liquidity after IFRS adoption was significantly greater for the TSXV exchange, consistent with the trade-off between global comparability and accommodating local investor needs.

JEL Classification: IFRS, Liquidity, International Firms

Suggested Citation

Khan, Shahid, Did Mandatory Adoption of IFRS Increase Liquidity in the Canadian Stock Markets? (January 15, 2016). Available at SSRN: https://ssrn.com/abstract=2716149 or http://dx.doi.org/10.2139/ssrn.2716149

Shahid Khan (Contact Author)

Pennsylvania State University ( email )

Berks Campus
Reading, PA 16802
United States

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