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The impact of mandatory IFRS reporting on institutional trading costs: Evidence from Australia

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  • Andrew Lepone
  • Jin Boon Wong

Abstract

This study examines the impact of mandatory International Financial Reporting Standards (IFRS) on the market quality of the Australian Securities Exchange (ASX) 200 constituent stocks. Using traditional metrics that are consistent with prior literature (i.e., bid‐ask spreads), the first stage analysis confirms that stock liquidity has improved. However, when the analysis is extended to consider the trading costs incurred by market participants (i.e., execution shortfall), results suggest liquidity has not changed significantly. The paper utilizes rich unique datasets that contain detailed trade information, and findings are robust after controlling for trade difficulty and market conditions. In the era of High Frequency Trading (HFT) and occurrences of ‘fleeting’ liquidity, this paper provides some evidence that while IFRS may have enhanced ‘visible’ bid‐ask spreads, tangible liquidity for market participants, particularly global institutional investors, has not improved significantly.

Suggested Citation

  • Andrew Lepone & Jin Boon Wong, 2018. "The impact of mandatory IFRS reporting on institutional trading costs: Evidence from Australia," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 45(7-8), pages 797-817, July.
    • Handle: RePEc:bla:jbfnac:v:45:y:2018:i:7-8:p:797-817
    DOI: 10.1111/jbfa.12320
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    Cited by:

    1. Qin Zhang & Jin Boon Wong, 2023. "The influence of oil price uncertainty on stock liquidity," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(2), pages 141-167, February.
    2. Zhang, Qin & Wong, Jin Boon, 2022. "ESG reputational risks and board monitoring committees," Finance Research Letters, Elsevier, vol. 50(C).
    3. Solomon Opare & Muhammad Nurul Houqe & Tony van Zijl, 2021. "Meta‐analysis of the Impact of Adoption of IFRS on Financial Reporting Comparability, Market Liquidity, and Cost of Capital," Abacus, Accounting Foundation, University of Sydney, vol. 57(3), pages 502-556, September.
    4. Hu, Gang & Jo, Koren M. & Wang, Yi Alex & Xie, Jing, 2018. "Institutional trading and Abel Noser data," Journal of Corporate Finance, Elsevier, vol. 52(C), pages 143-167.

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