European Firms Benefit from Adopting IFRS Accounting
With the US now on a forced march to adopt International Financial Reporting Standards (IFRS), a new working paper* published by Harvard Business School provides some encouragement based on Europe’s experience with the system.
The paper examines the European stock market reaction to sixteen events associated with the adoption of (IFRS) in Europe. The paper finds:
- A more positive reaction for firms with lower quality pre-adoption information, which is more pronounced in banks, and with higher pre-adoption information asymmetry, consistent with investors expecting net information quality benefits from IFRS adoption.”
- The reaction is less positive for firms domiciled in code law countries, consistent with investors’ concerns over enforcement of IFRS in those countries.
- A positive reaction to IFRS adoption events for firms with high quality pre-adoption information, consistent with investors expecting net convergence benefits from IFRS adoption.
Overall, the findings suggest that investors in European firms perceived net benefits associated with IFRS adoption.
*Market Reaction to the Adoption of IFRS in Europe
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