The Valuation Effects of Firm Voluntary Adoption of International Accounting Standards
45 Pages Posted: 4 Mar 2005
Date Written: July 2005
Abstract
This paper documents a positive, statistically and economically significant effect of increased disclosure, in general, and IAS adoption, in particular, on firm value. We find strong positive abnormal returns at the announcement of IAS adoption and an economically significant long-run reduction in the cost of capital. This result is consistent with the theoretical literature, which documents the potential benefits of increased disclosure on the cost of capital and firm value. In addition, we find strong evidence that firms with lower valuations and higher growth opportunities experience greater valuation effects. Finally, we document a statistically significant increase in the number of analysts issuing recommendations as well as a significant upgrade in their recommendations after the IAS adoption announcement. These results highlight the importance of increased disclosure on minority shareholder protection and are consistent with IAS adoption being a positive signal of firm value.
Keywords: International Accounting Standards, Information, Cost of Capital, Shareholder Protection, Signaling
JEL Classification: G14, G15, G30, M40
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
International Accounting Standards and Accounting Quality
By Mary E. Barth, Wayne R. Landsman, ...
-
Mandatory IFRS Reporting Around the World: Early Evidence on the Economic Consequences
By Holger Daske, Luzi Hail, ...
-
International Financial Reporting Standards (IFRS): Pros and Cons for Investors
By Ray Ball
-
Financial Statement Effects of Adopting International Accounting Standards: the Case of Germany
By Mingyi Hung and K.r. Subramanyam
-
Market Reaction to the Adoption of IFRS in Europe
By Chris Armstrong, Mary E. Barth, ...
-
Market Reaction to the Adoption of IFRS in Europe
By Chris Armstrong, Mary E. Barth, ...
-
By Vicentiu Covrig, Mark L. Defond, ...
-
Adopting a Label: Heterogeneity in the Economic Consequences Around IAS/IFRS Adoptions
By Holger Daske, Luzi Hail, ...