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Market Reaction to the Adoption of IFRS in Europe

Christopher S. Armstrong (), Mary E. Barth (), Alan D. Jagolinzer () and Edward J. Riedl ()
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Christopher S. Armstrong: The Wharton School, University of Pennsylvania
Mary E. Barth: Graduate School of Business, Stanford University
Alan D. Jagolinzer: Graduate School of Business, Stanford University
Edward J. Riedl: Harvard Business School, Accounting and Management Unit

No 09-032, Harvard Business School Working Papers from Harvard Business School

Abstract: This study examines the European stock market reaction to sixteen events associated with the adoption of International Financial Reporting Standards (IFRS) in Europe. European IFRS adoption represented a major milestone towards financial reporting convergence yet spurred controversy reaching the highest levels of government. We find a more positive reaction for firms with lower quality pre-adoption information, which is more pronounced in banks, and with higher pre-adoption information asymmetry, consistent with investors expecting net information quality benefits from IFRS adoption. We also find that the reaction is less positive for firms domiciled in code law countries, consistent with investors' concerns over enforcement of IFRS in those countries. Finally, we find a positive reaction to IFRS adoption events for firms with high quality pre-adoption information, consistent with investors expecting net convergence benefits from IFRS adoption. Overall, the findings suggest that investors in European firms perceived net benefits associated with IFRS adoption.

Keywords: IFRS; IAS 39; Convergence; Europe; Event Study (search for similar items in EconPapers)
JEL-codes: G15 G38 M41 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2008-09
New Economics Papers: this item is included in nep-acc and nep-eec
References: View references in EconPapers View complete reference list from CitEc
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