Recognition versus disclosure and stock price crash risk: Evidence from IFRS 16 adoption

Audrey Hsu () and Sophia Liu ()
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Audrey Hsu: National Taiwan University
Sophia Liu: National Taiwan University

Review of Quantitative Finance and Accounting, 2025, vol. 65, issue 2, No 9, 749-776

Abstract: Abstract Motivated by the intention of both the IASB and FASB leading up to the adoption of IFRS 16 (ASC 842), which brings off-balance-sheet (OBS) leases back onto corporate balance sheets, we investigate whether IFRS 16 adoption affects stock price crash risk. Since all leases have to be recognized on the balance sheets after IFRS 16 adoption, we expect that IFRS 16 adoption significantly improves the transparency of information about OBS leases and facilitates financial statement comparability between companies that lease assets and companies that borrow to purchase assets. Both information transparency and statement comparability can constrain managers’ ability to hoard negative news (Haggard et al. Haggard et al., Finan Manag 37:747–768, 2008; Kim et al. Kim et al., J Account Econ 61:294–312, 2016). Therefore, we expect that firms’ stock price crash risk will decrease after IFRS 16 adoption. Using a sample of Taiwan non-financial firms over 2015–2022, we find that firms affected by IFRS 16 adoption experience a decrease in stock price crash risk after the mandatory adoption of IFRS 16. We further find that investors in firms that are less sophisticated in processing OBS lease information and firms with poorer corporate governance experience a greater decrease in stock price crash risk than other firms after IFRS 16 adoption.

Keywords: Stock price crash risk; Recognition; Disclosure; IFRS 16; Off-balance-sheet lease (search for similar items in EconPapers)
JEL-codes: G14 G24 G30 M41 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11156-024-01359-0

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