Who Benefits from IFRS Convergence in China?

Journal of Accounting, Auditing and Finance Volume 34, Issue1, pp. 99-124, 2018

Posted: 30 Jun 2019

See all articles by Chao Chen

Chao Chen

Fudan University

Edward Lee

University of Manchester - Alliance Manchester Business School

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business

Jessie Zhu

University of Toronto - Rotman School of Management

Multiple version iconThere are 3 versions of this paper

Date Written: January 22, 2016

Abstract

We study the ex ante stock market reactions to events leading up to China’s convergence to International Financial Reporting Standards (IFRS). The literature consistently shows that the benefits of mandatory IFRS convergence are concentrated in countries with stronger legal enforcement and investor protection. Given that these institutional characteristics are weaker in China relative to more developed Western economies, whether mandating IFRS will benefit the Chinese capital market is an interesting and important, but unanswered question. We find that the Chinese stock market reacts favorably to events leading up to IFRS convergence, and this effect is more pronounced among firms with greater dependence on external capital. This result suggests the market anticipates that such firms will benefit more from IFRS convergence, possibly because of improved financial reporting quality and access to external financing. Additional tests confirm that the value relevance of accounting numbers for these firms is higher following IFRS convergence.

Keywords: International Financial Reporting Standards; Convergence; Market reaction; Value relevance; Capital demand

JEL Classification: M41, G15, G38

Suggested Citation

Chen, Chao and Lee, Edward and Lobo, Gerald J. and Zhu, Jessie, Who Benefits from IFRS Convergence in China? (January 22, 2016). Journal of Accounting, Auditing and Finance Volume 34, Issue1, pp. 99-124, 2018, Available at SSRN: https://ssrn.com/abstract=2906626

Chao Chen (Contact Author)

Fudan University ( email )

School of Management
670 Guoshun Road
Shanghai, 200433
China

Edward Lee

University of Manchester - Alliance Manchester Business School ( email )

Booth St. West (Crawford House)
Manchester, M15 6PB
United Kingdom

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States
713-743-4838 (Phone)
713-743-4828 (Fax)

HOME PAGE: http://www.bauer.uh.edu/acct/acctprofile.asp?search=Gerald%20Lobo

Jessie Zhu

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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