IFRS adoption, financial reporting quality and cost of capital: a life cycle perspective

Ahsan Habib, Md. Borhan Uddin Bhuiyan and Mostafa Monzur Hasan

Pacific Accounting Review, 2019, vol. 31, issue 3, 497-522

Abstract: Purpose - This paper aims to investigate the impact of International Financial Reporting Standards (IFRS) adoption on financial reporting quality and cost of equity. The paper further investigates whether such association varies at different life cycle stages. Design/methodology/approach - This paper follows the methodologies of DeAngeloet al.(2006) and Dickinson (2011) to develop proxies for the firms’ stages in the life cycle. Findings - Using both pre- and post-IFRS adoption period for Australian listed companies, the paper finds that financial reporting quality reduced and cost of equity increased because of the adoption of IFRS. The paper further evidences that financial reporting quality in the post-IFRS period increased cost of equity. Finally, the paper finds that mature firms produce a better quality of earnings, which result in lower cost of capital. The results indicate that a mature firm was benefited because of the adoption of IFRS. Originality/value - The finding of this research is useful to the regulators and practitioners to understand the widespread benefit of IFRS adoption.

Keywords: Financial reporting quality; IFRS; Cost of equity; Firm life cycle (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eme:parpps:par-08-2016-0073

DOI: 10.1108/PAR-08-2016-0073

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