Research Seminars

Mandatory Adoption of IFRS and Stock Price Informativeness

Speaker: Philip JOOS
Tilburg University

16 January 2009 - From 14h00 to 16h00

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In this paper, we examine whether mandatory adoption of IFRS ameliorates firm
opacity and contributes to stock price informativeness. Using Dasgupta et al.’s (2007)
framework, we predict a decrease in synchronicity around the time of mandatory adoption of
IFRS, and a subsequent increase in synchronicity in the post-IFRS adoption period. Using a
sample of 2,173 mandatory IFRS adopters in 14 EU countries, we find stock return
synchronicity decreased in 2005 (the year of mandatory IFRS adoption), but subsequently
increased in the post-adoption years to levels higher than the pre-adoption period. We also
find synchronicity increases more in the post-IFRS adoption period when analyst activity is
higher. In contrast, we find synchronicity returned to pre-IFRS adoption levels during the
post-IFRS adoption period for firms with higher institutional ownership, which is consistent
with a continuing private information advantage enjoyed by institutional investors under the
IFRS regime. Overall, our evidence adds to the growing stream of literature on the
consequences of mandatory IFRS adoption.

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