The Influence of IFRS Adoption on Banks’ Cost of Equity: Evidence from European Banks

Sang-Giun Yim
Additional contact information
Sang-Giun Yim: School of Finance and Accounting, Kookmin University, Kookmin University, 77, Jeongneung-ro, Seongbuk-gu, Seoul 02707, Korea

Sustainability, 2020, vol. 12, issue 9, 1-16

Abstract: This study examines how mandatory adoption of International Financial Reporting Standards (IFRS) in European countries affects banks’ cost of equity. Supporters of IFRS argue that its adoption improves the quality of accounting information, which in turn decreases the cost of equity. However, banking regulators could intervene in the implementation of new accounting standards to protect the stability of the banking system, which would deteriorate banks’ information environment and thereby increase the cost of equity. Using a regression analysis of European listed bank data, I find that banks’ cost of equity increases after the adoption of IFRS in countries with strong bank supervisory offices. I also find that strong legal enforcement and additional disclosure requirements jointly reduce banks’ cost of equity, but pre-IFRS inconsistencies between local accounting standards and regulatory standards jointly increase banks’ cost of equity. This study contributes to the literature on market discipline in banking and has policy implications: The findings suggest that, when implementing new accounting standards, potential conflicts between financial reporting and banking regulations should be considered.

Keywords: cost of equity; IFRS adoption; European banks; corporate governance; banking regulation (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.mdpi.com/2071-1050/12/9/3535/pdf (application/pdf)
https://www.mdpi.com/2071-1050/12/9/3535/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:12:y:2020:i:9:p:3535-:d:350596

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().