The Valuation Effects of Firm Voluntary Adoption of International Accounting Standards

45 Pages Posted: 4 Mar 2005

See all articles by Irene Karamanou

Irene Karamanou

University of Cyprus - Department of Public and Business Administration

George Nishiotis

University of Cyprus-Faculty of Economics and Management-Department of Accounting and Finance

Date Written: July 2005

Abstract

This paper documents a positive, statistically and economically significant effect of increased disclosure, in general, and IAS adoption, in particular, on firm value. We find strong positive abnormal returns at the announcement of IAS adoption and an economically significant long-run reduction in the cost of capital. This result is consistent with the theoretical literature, which documents the potential benefits of increased disclosure on the cost of capital and firm value. In addition, we find strong evidence that firms with lower valuations and higher growth opportunities experience greater valuation effects. Finally, we document a statistically significant increase in the number of analysts issuing recommendations as well as a significant upgrade in their recommendations after the IAS adoption announcement. These results highlight the importance of increased disclosure on minority shareholder protection and are consistent with IAS adoption being a positive signal of firm value.

Keywords: International Accounting Standards, Information, Cost of Capital, Shareholder Protection, Signaling

JEL Classification: G14, G15, G30, M40

Suggested Citation

Karamanou, Irene and Nishiotis, George P., The Valuation Effects of Firm Voluntary Adoption of International Accounting Standards (July 2005). Available at SSRN: https://ssrn.com/abstract=676328 or http://dx.doi.org/10.2139/ssrn.676328

Irene Karamanou

University of Cyprus - Department of Public and Business Administration ( email )

75 Kallipoleos Street
P.O. Box 20537
Nicosia CY-1678
CYPRUS
+357 2 892471 (Phone)
+357 2 892460 (Fax)

George P. Nishiotis (Contact Author)

University of Cyprus-Faculty of Economics and Management-Department of Accounting and Finance ( email )

Cyprus

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