Mandatory IFRS adoption and financial statement comparability
By: Francois Brochet, Alan D. Jagolinzer, Edward J. Riedl
Contributors: Jagolinzer, Alan D.; Riedl, Edward J.; Harvard Business School
Edition: Rev.
Series: Working paper / Harvard Business School -- 11-109; Working paper (Harvard Business School) -- 11-109.
Publisher: Harvard Business School
Published: 2012
Place of publication: [Boston]
Language: eng
Number of pages: 51
Description: This study examines whether mandatory adoption of International Financial Reporting Standards (IFRS) leads to capital market benefits through enhanced financial statement comparability. UK domestic standards are considered very similar to IFRS (Bae et al. 2008), suggesting any capital market benefits observed for UK-domiciled firms are more likely attributable to improvements in comparability (i.e., better precision of across-firm information) than to changes in information quality specific to the firm (i.e., core information quality). If IFRS adoption improves financial statement comparability, we predict this should reduce insiders' ability to benefit from private information. Consistent with these expectations, we find that abnormal returns to insider purchases--used to proxy for private information--are reduced following IFRS adoption. Similar results obtain across numerous subsamples and proxies used to isolate IFRS effects attributable to comparability. Together, the findings are consistent with mandatory IFRS adoption improving comparability and thus leading to capital market benefits by reducing insiders' ability to exploit private information.
Notes: 3rd revision. Originally published: April 2011.

"April 2011, revised April 2012, August 2012" -- Publisher's website.

Includes bibliographical references.