Re-examining the impact of mandatory IFRS adoption on IPO Underpricing

59 Pages Posted: 23 Sep 2019 Last revised: 6 Aug 2020

See all articles by Donal Byard

Donal Byard

City University of New York - Stan Ross Department of Accountancy

Masako N. Darrough

Baruch College - CUNY

Jangwon Suh

New York Institute of Technology

Date Written: August 5, 2020

Abstract

In the mid-2000s, the European Union (EU) adopted a number of regulatory reforms intended to increase transparency and disclosure for IPO firms, including mandating the use of International Financial Reporting Standards (IFRS). The reforms also included (1) adoption of the Prospectus Directive (PD), which mandated increased IPO prospectus disclosures and (2) increased accounting enforcement. These new regulations apply only to IPOs listing on “EU-regulated” markets; firms admitted to trading on “exchange-regulated” markets are exempt from these regulations. We examine the impact of these regulations on IPO firms. For firms listing on EU-regulated markets, we find no association between IFRS and IPO underpricing; however, we find a significant decrease in IPO underpricing associated with adoption of the PD in countries that also increased accounting enforcement. Further, we confirm that after 2005, most IPOs on exchange-regulated markets went public using domestic accounting standards, not IFRS. Our findings are important since they suggest that mandatory IFRS adoption did not play a major role in reducing IPO underpricing and contrast sharply with the results of prior research, which failed to account for IPOs on exchange-regulated markets. Our evidence highlights the importance of controlling for contemporaneous changes in regulations and details of the institutional setting before attributing major economic consequences to a switch from domestic accounting standards to IFRS.

Keywords: Mandatory IFRS adoption, IPO Underpricing, European Union, Prospectus Directive, EU-Regulated Market, Exchange-Regulated Market

JEL Classification: G15, M41, M48

Suggested Citation

Byard, Donal and Darrough, Masako N. and Suh, Jangwon, Re-examining the impact of mandatory IFRS adoption on IPO Underpricing (August 5, 2020). Baruch College Zicklin School of Business Research Paper No. 2019-09-01, Available at SSRN: https://ssrn.com/abstract=3453254 or http://dx.doi.org/10.2139/ssrn.3453254

Donal Byard (Contact Author)

City University of New York - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States
646-312-3187 (Phone)
646-312-3161 (Fax)

Masako N. Darrough

Baruch College - CUNY ( email )

One Bernard Baruch Way
New York, NY 10010
United States
646 312 3183 (Phone)
646 312 3161 (Fax)

Jangwon Suh

New York Institute of Technology ( email )

1855 Broadway
New York, NY 10023
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
88
Abstract Views
741
rank
322,756
PlumX Metrics