The Effect of IFRS Adoption on Corporate Cash Holdings: Evidence from MENA Countries

Serdar Ozkan, Chadi Yaacoub, Nasser El-Kanj and Vladimir Dzenopoljac

Emerging Markets Finance and Trade, 2021, vol. 57, issue 11, 3275-3300

Abstract: We investigate the relationship between IFRS adoption and firms’ cash holdings in ten Arab countries in the MENA. We first show that IFRS adoption reduces the cash holdings of the firms. The effect of IFRS adoption is robust for high-income countries in the Gulf region. This result implies that high-quality financial information reduces the information asymmetries; this, in turn, lowers the cost of capital and cash holdings. We suppose that strong macroeconomic conditions in Gulf countries facilitate the proper application of IFRS by weakening the incentives for earnings management. We also show that regardless of the income level of the countries, IFRS adoption reduces the cash holdings of large firms. Furthermore, we conclude that IFRS adoption is not able to reduce cash holdings in the case of high uncertainty (in terms of cash flow volatility of the firms) in the MENA.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:57:y:2021:i:11:p:3275-3300

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DOI: 10.1080/1540496X.2019.1693361

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