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  • Winter 2013
  • Article
  • Contemporary Accounting Research

Mandatory IFRS Adoption and Financial Statement Comparability

By: Francois Brochet, Alan Jagolinzer and Edward J. Riedl
  • Format:Print
  • | Pages:52
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Abstract

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 are derived 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.

Keywords

IFRS; Comparability; Private Information; Insider Trading; Ethics; Standards; Financial Statements

Citation

Brochet, Francois, Alan Jagolinzer, and Edward J. Riedl. "Mandatory IFRS Adoption and Financial Statement Comparability." Contemporary Accounting Research 30, no. 4 (Winter 2013): 1373–1400.
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More from the Authors

    • July 2016
    • Accounting Review

    The Capital Market Consequences of Language Barriers in the Conference Calls of Non-U.S. Firms

    By: Francois Brochet, Patricia L. Naranjo and Gwen Yu
    • March 2014
    • Accounting Review

    Do Analysts Follow Managers Who Switch Companies? An Analysis of Relationships in the Capital Markets

    By: Francois Brochet, Gregory S. Miller and Suraj Srinivasan
    • February 2014
    • Journal of Financial Economics

    Accountability of Independent Directors—Evidence from Firms Subject to Securities Litigation

    By: Francois Brochet and Suraj Srinivasan
More from the Authors
  • The Capital Market Consequences of Language Barriers in the Conference Calls of Non-U.S. Firms By: Francois Brochet, Patricia L. Naranjo and Gwen Yu
  • Do Analysts Follow Managers Who Switch Companies? An Analysis of Relationships in the Capital Markets By: Francois Brochet, Gregory S. Miller and Suraj Srinivasan
  • Accountability of Independent Directors—Evidence from Firms Subject to Securities Litigation By: Francois Brochet and Suraj Srinivasan
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