Mandatory IFRS Reporting and Stock Price Informativeness

C.A.C. Beuselinck, P.P.M. Joos, I.K. Khurana, S. van der Meulen

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Abstract

In this paper, we examine whether mandatory adoption of IFRS influences the flow of firm-specific information and contributes to stock price informativeness as measured by stock return synchronicity. Using a constant sample of 1,904 mandatory IFRS adopters in 14 EU countries for the period 2003-2007, we find a V-shaped pattern in synchronicity around IFRS adoption, which is consistent with IFRS disclosures revealing new firm-specific information in the adoption period (i.e., a reduction of synchronicity) and subsequently lowering the surprise of future disclosures (i.e., an increase in synchronicity). We also find mandatory IFRS adoption increases analysts’ ability to incorporate industry-level information into stock price. However, we are unable to detect a reduction in the private information advantage enjoyed by institutional owners post-IFRS adoption. Moreover, we find the synchronicity effects to be more pronounced for firms in countries with larger differences in local GAAP relative to IFRS. Overall, our evidence yields novel insights on the consequences of mandatory IFRS adoption by investigating its effect on stock price informativeness and the distinctive roles played by a firm’s information environment.
Original languageEnglish
Place of PublicationTilburg
PublisherAccounting
Number of pages57
Volume2010-82
Publication statusPublished - 2010

Publication series

NameCentER Discussion Paper
Volume2010-82

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Synchronicity
Price informativeness
Stock prices
International Financial Reporting Standards
IFRS adoption
Disclosure
Industry
EU countries
Analysts
Stock returns
Owners
Surprise
Information advantage
Information environment
Private information
New firms

Keywords

  • IFRS
  • mandatory adoption
  • stock return synchronicity
  • information environment

Cite this

Beuselinck, C. A. C., Joos, P. P. M., Khurana, I. K., & van der Meulen, S. (2010). Mandatory IFRS Reporting and Stock Price Informativeness. (CentER Discussion Paper; Vol. 2010-82). Tilburg: Accounting.
Beuselinck, C.A.C. ; Joos, P.P.M. ; Khurana, I.K. ; van der Meulen, S. / Mandatory IFRS Reporting and Stock Price Informativeness. Tilburg : Accounting, 2010. (CentER Discussion Paper).
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Beuselinck, CAC, Joos, PPM, Khurana, IK & van der Meulen, S 2010 'Mandatory IFRS Reporting and Stock Price Informativeness' CentER Discussion Paper, vol. 2010-82, Accounting, Tilburg.

Mandatory IFRS Reporting and Stock Price Informativeness. / Beuselinck, C.A.C.; Joos, P.P.M.; Khurana, I.K.; van der Meulen, S.

Tilburg : Accounting, 2010. (CentER Discussion Paper; Vol. 2010-82).

Research output: Working paperDiscussion paperOther research output

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AB - In this paper, we examine whether mandatory adoption of IFRS influences the flow of firm-specific information and contributes to stock price informativeness as measured by stock return synchronicity. Using a constant sample of 1,904 mandatory IFRS adopters in 14 EU countries for the period 2003-2007, we find a V-shaped pattern in synchronicity around IFRS adoption, which is consistent with IFRS disclosures revealing new firm-specific information in the adoption period (i.e., a reduction of synchronicity) and subsequently lowering the surprise of future disclosures (i.e., an increase in synchronicity). We also find mandatory IFRS adoption increases analysts’ ability to incorporate industry-level information into stock price. However, we are unable to detect a reduction in the private information advantage enjoyed by institutional owners post-IFRS adoption. Moreover, we find the synchronicity effects to be more pronounced for firms in countries with larger differences in local GAAP relative to IFRS. Overall, our evidence yields novel insights on the consequences of mandatory IFRS adoption by investigating its effect on stock price informativeness and the distinctive roles played by a firm’s information environment.

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Beuselinck CAC, Joos PPM, Khurana IK, van der Meulen S. Mandatory IFRS Reporting and Stock Price Informativeness. Tilburg: Accounting. 2010. (CentER Discussion Paper).