The Effect of IFRS Adoption on Corporate Cash Holdings: Evidence from MENA Countries

Emerging Markets Finance and Trade, Forthcoming

Posted: 13 Dec 2019

See all articles by Serdar Ozkan

Serdar Ozkan

American University of the Middle East

Chadi Yaacoub

affiliation not provided to SSRN

Nasser El-Kanj

American University of the Middle East (AUM)

Vladimir Dzenopoljac

affiliation not provided to SSRN

Date Written: November 26, 2019

Abstract

We investigate the relationship between IFRS adoption and firms’ cash holdings in ten Arab countries in the MENA. We first show that IFRS adoption reduces the cash holdings of the firms. The effect of IFRS adoption is robust for high-income countries in the Gulf region. This result implies that high-quality financial information reduces the information asymmetries; this, in turn, lowers the cost of capital and cash holdings. We suppose that strong macroeconomic conditions in Gulf countries facilitate the proper application of IFRS by weakening the incentives for earnings management. We also show that regardless of the income level of the countries, IFRS adoption reduces the cash holdings of large firms. Furthermore, we conclude that IFRS adoption is not able to reduce cash holdings in the case of high uncertainty (in terms of cash flow volatility of the firms) in the MENA.

Keywords: Cash holdings, IFRS, accounting standards, accounting quality, MENA

JEL Classification: G30, G31, G38

Suggested Citation

Ozkan, Serdar and Yaacoub, Chadi and El-Kanj, Nasser and Dzenopoljac, Vladimir, The Effect of IFRS Adoption on Corporate Cash Holdings: Evidence from MENA Countries (November 26, 2019). Emerging Markets Finance and Trade, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3493622

Serdar Ozkan (Contact Author)

American University of the Middle East ( email )

250 St.
Block 3, Building 1
Egaila
Kuwait

Chadi Yaacoub

affiliation not provided to SSRN

Nasser El-Kanj

American University of the Middle East (AUM) ( email )

250 St.
Block 3, Building 1
Egaila
Kuwait

Vladimir Dzenopoljac

affiliation not provided to SSRN

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