Re-examining the impact of mandatory IFRS adoption on IPO underpricing

Donal Byard (), Masako Darrough and Jangwon Suh
Additional contact information
Donal Byard: Baruch College, CUNY
Masako Darrough: Baruch College, CUNY
Jangwon Suh: New York Institute of Technology

Review of Accounting Studies, 2021, vol. 26, issue 4, No 4, 1344-1389

Abstract: Abstract In the mid-2000s, the European Union adopted a number of regulatory reforms intended to increase transparency and disclosure for IPO firms, including mandating the use of International Financial Reporting Standards (IFRS). The reforms also included (1) adoption of the Prospectus Directive, which mandated increased IPO prospectus disclosures and (2) increased accounting enforcement. These new regulations apply only to IPOs listing on “EU-regulated” markets; firms admitted to trading on “exchange-regulated” markets are exempt. We examine the impact of these regulations on IPO firms. For firms listing on EU-regulated markets, we find no association between IFRS and IPO underpricing; however, we find a significant decrease in IPO underpricing associated with adoption of the Prospectus Directive in countries that also increased accounting enforcement. Further, we confirm that, after 2005, most IPOs on exchange-regulated markets went public using domestic accounting standards, not IFRS. Our findings suggest that mandatory IFRS adoption did not play a major role in reducing IPO underpricing and contrast sharply with prior results, which failed to account for IPOs on exchange-regulated markets. Our evidence highlights the importance of controlling for contemporaneous changes in regulations and details of the institutional setting before attributing major economic consequences to a switch from domestic accounting standards to IFRS.

Keywords: Mandatory IFRS adoption; IPO underpricing; European Union; Prospectus directive; EU-regulated market; Exchange-regulated market (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://link.springer.com/10.1007/s11142-020-09576-3 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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:spr:reaccs:v:26:y:2021:i:4:d:10.1007_s11142-020-09576-3

Ordering information: This journal article can be ordered from
http://www.springer.com/accounting/journal/11142

DOI: 10.1007/s11142-020-09576-3

Access Statistics for this article

Review of Accounting Studies is currently edited by Paul Fischer

More articles in Review of Accounting Studies from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().