Does a Firm’s Corporate Governance Enhance the Beneficial Effect of IFRS Adoption?

Jaeyon Chu, Kyongsun Heo and Jinhan Pae
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Jaeyon Chu: Department of Accounting, Hannam University, Daejeon 34430, Korea
Kyongsun Heo: Department of Global Business, Kangnam University, Yongin-si 16979, Korea
Jinhan Pae: Business School, Korea University, Seoul 02841, Korea

Sustainability, 2019, vol. 11, issue 3, 1-13

Abstract: Prior literature suggests that the effect of adopting the International Financial Reporting Standards (IFRS) could vary by country-specific or firm-specific factors. In particular, we focus on the effect of the strength of corporate governance of a firm, a firm-specific characteristic, prior to the adoption of IFRS. Specifically, we use the Korea Corporate Governance Stock Price Index, a metric for the corporate governance structure in Korea, to examine whether the corporate governance structure influences the effect of IFRS adoption on the analyst’s earnings forecasts in Korea. We find that the beneficial effect of IFRS adoption on analyst forecast errors is observed for firms with moderate corporate governance prior to IFRS adoption, but not for firms with superior or inferior corporate governance. We interpret our findings such that firms with strong or weak corporate governance do not benefit from IFRS adoption, because firms with strong corporate governance already had transparent information system prior to IFRS adoption and firms with weak corporate governance failed to implement IFRS properly.

Keywords: International Financial Reporting Standards; analysts’ absolute forecast errors; corporate governance; Korea Corporate Governance Stock Price Index (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
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