The Value-Relevance of Adopting IFRS: Evidence from 145 NGAAP Restatements

52 Pages Posted: 28 Feb 2007 Last revised: 29 Sep 2008

See all articles by Oystein Gjerde

Oystein Gjerde

Norwegian School of Economics (NHH) - Department of Business and Management Science

Kjell Henry Knivsflå

Norwegian School of Economics (NHH)

Frode Saettem

Norwegian School of Economics (NHH) - Department of Business and Management Science

Date Written: August 8, 2008

Abstract

Firms listed on stock exchanges within the European Economic Area are required to report consolidated financial statements according to IFRS from 2005. The firms that adopted IFRS in 2005 were also required to restate their 2004 financial statements from national GAAP to provide comparable accounting figures. These two sets of financial statements for 2004 are thus based on identical underlying economic activities and are fully specified according to two different reporting regimes. Our sample consists of 145 restatements from NGAAP to IFRS for firms listed on the Oslo Stock Exchange in Norway. We test whether the IFRS accounting figures correlate more strongly with stock market values than the corresponding NGAAP figures. We find little evidence of increased value-relevance after adopting IFRS when comparing and evaluating the two regimes unconditionally. On the other hand, when evaluating the change in the accounting figures from NGAAP to IFRS, we find evidence that the reconcilement adjustments to IFRS are marginally value-relevant due to increased relevance of the balance sheet and the normalized net operating income. By weighting our sample by firm size, intangible asset intensity and profitability, we learn that the increased value-relevance of the net operating income stems from different reporting of intangible assets. Since more intangible assets are capitalized according to IFRS than NGAAP, our finding is consistent with the view that capitalizing intangible assets is more value-relevant than expensing them as incurred or through goodwill amortization.

Keywords: Value-relevance of reporting standards, IFRS versus NGAAP, accounting harmonization, balance sheet-oriented conceptual frameworks versus earnings-oriented conceptual frameworks

JEL Classification: M41, M44, M47

Suggested Citation

Gjerde, Oystein and Knivsflå, Kjell Henry and Sættem, Frode, The Value-Relevance of Adopting IFRS: Evidence from 145 NGAAP Restatements (August 8, 2008). Available at SSRN: https://ssrn.com/abstract=966080 or http://dx.doi.org/10.2139/ssrn.966080

Oystein Gjerde

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Kjell Henry Knivsflå (Contact Author)

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, 5045
Norway

Frode Sættem

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway
+47 55 95 92 72 (Phone)

HOME PAGE: http://www.nhh.no/Default.aspx?ID=2024

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