IFRS adoption and stock misvaluation: Implication to Korea discount

Meeok Cho, Sehee Kim, Yewon Kim, Bryan Byung-Hee Lee and Woo-Jong Lee

Research in International Business and Finance, 2021, vol. 58, issue C

Abstract: Analyzing publicly traded stocks in Korea surrounding IFRS adoption in 2011, we find that the gap between stock price and firm value, value-to-price (V/P) ratio, narrows following the IFRS adoption and that this narrowed gap is observed only for higher V/P firms. We further find that the return predictability of V/P decreases in the post-IFRS period. Using a path analysis, we report further evidence that mandatory IFRS adoption decreases idiosyncratic volatility and improves trading volume and market liquidity, thereby contributing to the narrowed gap between value and price. We conclude that IFRS adoption contributes to resolution of Korea discount.

Keywords: Mandatory IFRS adoption; Residual income model; Market efficiency; Stock misvaluation (search for similar items in EconPapers)
JEL-codes: G12 M48 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:58:y:2021:i:c:s027553192100115x

DOI: 10.1016/j.ribaf.2021.101494

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