The Market Reaction to the Adoption of IFRS in the European Insurance Industry
The Geneva Papers on Risk and Insurance-Issues and Practice, 43, Issue 4, 653-703 (2018)
Posted: 3 Jan 2019
Date Written: December 19, 2018
This study examines the market reaction of the European insurance industry to the adoption of International Financial Reporting Standards (IFRS) in Europe. Using an event study methodology, we find that investors in the insurance industry reacted favorably to most of the events that led to the adoption of IFRS. However, the positive reaction is not consistent across all events, which may reveal that investors’ concern whether the benefits of IFRS adoption (i.e. comparability and transparency) exceed the costs (i.e. increase audit fees and /or managerial discretion). We also find that investors’ reaction to IFRS adoption differs between life and non-life insurers. Specifically, our multivariate results show that investors in non-life insurance industry react more favorably to IFRS adoption, which indicates that they anticipate the benefits of IFRS to exceed the costs.
Keywords: IFRS, European insurance companies, market reaction, expected return, accounting reforms, life insurance, non-life insurance
JEL Classification: G12, G14, G18, G22
Suggested Citation: Suggested Citation