Accounting Standards Harmonization and Financial Integration
Posted: 21 May 2019 Last revised: 6 Jun 2019
Date Written: October 31, 2018
Abstract
We empirically examine whether adopting a uniform set of accounting standards mitigates information frictions in financial markets and facilitates market integration. Using a difference-in-difference design, we find that after the mandatory adoption of International Financial Reporting Standards (IFRS), local stock returns incorporate more global information and at a faster speed. The effect of IFRS adoption is stronger in countries where there are larger improvements in accounting comparability and for firms with a larger increase in foreign ownership. Overall, our results suggest that accounting standards harmonization facilitates financial market integration.
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