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Convergence of accounting standards and financial reporting externality: evidence from mandatory IFRS adoption

Ru Gao and Baljit K. Sidhu

Accounting and Finance, 2018, vol. 58, issue 3, 817-848

Abstract: Using mandatory adoption of International Financial Reporting Standards (IFRS) as a natural experiment, we examine whether reporting externalities can be magnified when financial disclosures are based on a common set of accounting standards. Specifically, we investigate and find that the changes in publicly available information of mandatory IFRS adopters (due to the convergence of accounting standards) can impact the investment efficiency of prior voluntary adopters. While we document positive externalities of mandatory IFRS, we also observe heterogeneity in these spillover effects at the firm and the country level, suggesting that externalities increase with improvements in the comparability of accounting information.

Date: 2018
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