The short- and long-lived effects of IFRS mandate on IPO firms in emerging market economies

Fouad Jamaani and Manal Alidarous

Journal of Financial Reporting and Accounting, 2021, vol. 20, issue 5, 953-978

Abstract: Purpose - This study aims to examine the short- and long-lived effects of the International Financial Reporting Standards (IFRS) mandate on the quality of reporting information of initial public offering (IPO) firms in emerging market economies. Design/methodology/approach - The study used several difference-in-differences models for a sample comprising 102 Saudi Arabian IPO firms for 2003–2017. Findings - It found that mandating the application of the IFRS had a significant short-lived but no long-lived effect on IPO firms’ information asymmetry. When information asymmetry was high such as in the primary market, the IFRS succeeded in alleviating the underpricing of IPO firms. Conversely, in the secondary market, with negligible information asymmetry, the IFRS was not beneficial for the long-term performance of companies in the IPO market. Originality/value - This study is the first of its kind in the emerging market context and has important implications for IPO investors and analysts, IFRS-IPO researchers and policymakers in emerging economies. The results empirically confirmed that the IFRS mandate had solely a short-lived effect and no long-lasting impact, on the problem of asymmetric information in the IPO market. The effectiveness of the IFRS in producing quality financial reporting is contingent upon large-scale information asymmetry and vanishes when investors and analysts have abundant information about listed firms, even for emerging economies such as Saudi Arabia.

Keywords: Saudi Arabia; Emerging countries; Information asymmetry; IPO underpricing; Long-term performance; Accounting disclosure; International financial reporting standards; Difference-in-differences; IPO performance; IFRS; Emerging markets; Saudi Arabian economy; Initial public offerings (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrapp:jfra-11-2020-0324

DOI: 10.1108/JFRA-11-2020-0324

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