Economic Consequences of IFRS Adoption: The Role of Changes in Disclosure Quality

56 Pages Posted: 30 Apr 2019

See all articles by Bin Li

Bin Li

University of Oklahoma - Michael F. Price College of Business

Gianfranco Siciliano

China Europe International Business School

Mohan Venkatachalam

Duke University - Fuqua School of Business

Date Written: March 1, 2019

Abstract

This study adopts a two-step approach to highlight the disclosure quality channel that drives economic consequences of IFRS adoption. In the first step, we document the impact of the IFRS mandate on changes in disclosure quality proxied by the granularity of line-item disclosure in financial statements. We find that IFRS-adopting firms provide more disaggregated information upon IFRS adoption, such as more granular disclosure of intangible assets and long-term investments on the Balance Sheet and greater disaggregation of depreciation and operating income items on the Income Statement. In the second step, we link the observed disclosure changes to the benefits and costs of IFRS adoption. We show that greater disaggregated information due to IFRS adoption enhances market liquidity and decreases information asymmetry, but does not affect audit fees differentially. Thus, the cost-benefit tradeoff of IFRS adoption is neither uniform across all IFRS-adopting countries nor across IFRS-adopters within each country.

Keywords: IFRS adoption; Nonmissing line items; Disclosure quality; Market liquidity; Audit fees

JEL Classification: M41; M48; G15

Suggested Citation

Li, Bin and Siciliano, Gianfranco and Venkatachalam, Mohan, Economic Consequences of IFRS Adoption: The Role of Changes in Disclosure Quality (March 1, 2019). Available at SSRN: https://ssrn.com/abstract=3366288 or http://dx.doi.org/10.2139/ssrn.3366288

Bin Li

University of Oklahoma - Michael F. Price College of Business ( email )

307 West Brooks
Norman, OK 73019-4004
United States

Gianfranco Siciliano

China Europe International Business School ( email )

Shanghai-Hongfeng Road
Shanghai 201206
Shanghai 201206
China

Mohan Venkatachalam (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7859 (Phone)
919-660-7971 (Fax)

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