The Differential Impact of IFRS Adoption on Aspects of Seasoned Equity Offerings in the UK and France

Accounting in Europe, Vol. 16, No. 1, 2019.

Posted: 24 Aug 2019 Last revised: 26 Aug 2019

See all articles by Mostafa Harakeh

Mostafa Harakeh

Lebanese American University

Edward Lee

University of Manchester - Alliance Manchester Business School

Martin Walker

University of Manchester - Manchester Business School

Date Written: October 31, 2018

Abstract

We examine the potential for IFRS to influence the market for SEOs in the UK and France. The divergence between the UK domestic accounting standards and IFRS is minor (low-divergence firms) whereas domestic accounting standards in France differ materially from IFRS (high-divergence firms); however, both countries have similar legal enforcement and institutional settings that might confound the effect of IFRS adoption. We argue that IFRS adoption serves to mitigate information asymmetry and improve accounting quality. Accordingly, we find that, following IFRS adoption, earnings management activities decrease among high-divergence firms prior to issuing SEOs. As a result of the lower levels of earnings management and information asymmetry, we predict and find that the market reaction to issuing SEOs improves significantly for high-divergence firms following IFRS. Given that equity financing becomes less costly, we find that the propensity to issue new SEOs increases among high-divergence firms after IFRS adoption. We find no similar changes among low-divergence firms. The results persist after running a matched-sample analysis and controlling for potential self-selection bias.

Keywords: IFRS, Information Asymmetry, Earnings Management, Seasoned Equity Offerings, Equity Financing

JEL Classification: G30, M40

Suggested Citation

Harakeh, Mostafa and Lee, Edward and Walker, Martin, The Differential Impact of IFRS Adoption on Aspects of Seasoned Equity Offerings in the UK and France (October 31, 2018). Accounting in Europe, Vol. 16, No. 1, 2019., Available at SSRN: https://ssrn.com/abstract=3442238

Mostafa Harakeh (Contact Author)

Lebanese American University ( email )

P.O.Box 36
Chouran-Beirut 1102 2801
Beirut
Lebanon

Edward Lee

University of Manchester - Alliance Manchester Business School ( email )

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

Martin Walker

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

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