IFRS 17 Insurance Contracts and Firm Value

Abstract

I examine how IFRS 17 Insurance Contracts affects the firm value of insurers reporting under IFRS (“IFRS insurers”). Studying 427 insurers’ stock returns around sixteen events affecting the chance that IFRS 17 passes, I find that the introduction of IFRS 17 is on average associated with negative abnormal returns for IFRS insurers, compared to insurers reporting under U.S. GAAP. Several robustness tests affirm my result, consistent with the hypothesis that IFRS 17 on average reduces firm value. OLS regressions indicate that the abnormal event returns correlate negatively with insurer size, suggesting that IFRS 17 is disproportionately costly for large insurers, potentially due to high implementation costs. Insurers’ book-to-market ratio negatively correlates with the abnormal event returns, which indicates that a lack of growth opportunities exacerbates the negative returns associated with the introduction of IFRS 17.

Keywords: IFRS 17, standard setting, cost-benefit trade-off, IASB, shareholder value, event study, insurance accounting

JEL Classification: G22, G14, G38, M41