Research

Research

Research

Executive Summary

This study examines European stock market reactions to events affiliated with the 2005 adoption of International Financial Reporting Standards (IFRS) in Europe.1 Prior to 2005, most European companies directed household accounting standards. Thus, the adoption of IFRS in Europe comprised one of the biggest financial describing alterations latest years and was contentious, developing argument that come to the largest grades of government. The adoption of IFRS as handed out by the International Accounting Standards Board (IASB) would outcome in the submission of a widespread set of financial reporting standards inside Europe, and between Europe and the numerous other nations that need or allow submission of IFRS. Thus, the argument was about not only the advantages and charges of IFRS adoption itself, but furthermore the international financial describing convergence significances TFRS were changed as a outcome of the adoption process. Modifying TFRS would outcome European standards differing from those utilised in other nations, thereby eradicating some promise convergence benefits. We mention to the adoption of IFRS as handed out by the IASB as the adoption of IFRS—adoption of changed standards is not adoption of IFRS is unclear how investors in European companies would answer to this foreseen change in financial reporting. This study examines these reactions.

It is likely that investors in European companies would answer positively to action in the direction of IFRS adoption if, for demonstration, investors anticipated submission of IFRS to outcome in higher value financial describing data, thereby reducing data asymmetry between the firm and investors and data risk and, therefore, cost of capital. Investors furthermore might have accepted that submission of a widespread set of standards would have convergence advantages, for example reducing the charges of matching firms' financial place and presentation over nations, and that IFRS adoption would endow European capital markets to become more globally comparable, with consequent rises in liquidity for European firms. Alternatively, it is likely that investors in European companies would answer contrary to action in the direction of IFRS adoption. This could be the case if investors accepted that IFRS would outcome in smaller value financial describing information. For demonstration, IFRS might not amply contemplate local dissimilarities in finances that directed to dissimilarities in household accounting standards. Also, investors might have accepted that promise variety the implementation and enforcement of IFRS would lead to an boost in the workout opportunistic managerial discretion when applying IFRS. Finally, investors might have accepted that the implementation and transition charges affiliated with IFRS would exceed any benefits.

To gain insight into investors' anticipations considering the snare cost or advantage of IFRS adoption in Europe, we analyze three-day market-adjusted comes back for companies with equity swapped in the European stock market centralised on  events that we consider as influencing the prospect of IFRS adoption in Europe. We find an incrementally affirmative answer for companies with smaller pre-adoption data value, which is reliable with investors anticipating that IFRS adoption will outcome in larger informational advantages for these ...