Mandatory IFRS adoption and financial statement comparability
By: Francois Brochet, Alan Jagolinzer, Edward J. Riedl
Contributors: Jagolinzer, Alan D.; Riedl, Edward J.; Harvard Business School
Series: Working paper / Harvard Business School -- 11-109; Working paper (Harvard Business School) -- 11-109.
Publisher: Harvard Business School
Published: 2011
Place of publication: [Boston]
Language: eng
Number of pages: 49
Description: This study examines the effect of mandatory International Financial Reporting Standards (IFRS) adoption on financial statement comparability. To isolate the effects of changes in comparability, we examine changes to information asymmetry for firms domiciled in the UK. UK domestic standards that preceded IFRS adoption are considered very similar to IFRS (Bae et al. 2008); accordingly, we use the UK as a setting to isolate changes to the information environment relating to IFRS adoption that more likely to reflect changes in comparability versus information quality. If IFRS adoption improves financial statement comparability across firms, we predict this should reduce private information benefits. Empirical results confirm these predictions. Specifically, abnormal returns to two proxies for private information (insider purchases and analyst recommendation upgrades) are reduced following IFRS adoption. Similar results are obtained for subsamples that further isolate the reduction in private information as attributable to increases in comparability: firms having low amounts of reconciling items between UK GAAP and IFRS, and firms having ex ante high quality information environments. Together, the results are consistent with mandatory IFRS adoption leading to enhanced comparability.
Notes: "April 2011" -- Publisher's website.

Includes bibliographical references.