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Compliance with IFRS disclosure requirements and individual analysts’ forecast errors

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  • Hodgdon, Christopher
  • Tondkar, Rasoul H.
  • Harless, David W.
  • Adhikari, Ajay

Abstract

We investigate the relationship between analysts’ earnings forecast errors and firm compliance with the disclosure requirements of International Financial Reporting Standards (IFRS). Using a comprehensive disclosure index of selected IFRS for which previous research has indicated significant noncompliance, we develop an unweighted and an innovative weighted measure of IFRS disclosure compliance. We document that forecast error is negatively related to IFRS compliance, and that the magnitude of this effect is larger when controlling for analyst fixed effects. Our findings suggest that compliance with the disclosure requirements of IFRS reduces information asymmetry and enhances the ability of financial analysts to provide more accurate forecasts. Our findings also support the viewpoint that the extent of compliance with accounting standards is as important as the standards themselves. Our results are robust to alternative model specifications.

Suggested Citation

  • Hodgdon, Christopher & Tondkar, Rasoul H. & Harless, David W. & Adhikari, Ajay, 2008. "Compliance with IFRS disclosure requirements and individual analysts’ forecast errors," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 17(1), pages 1-13.
    • Handle: RePEc:eee:jiaata:v:17:y:2008:i:1:p:1-13
    DOI: 10.1016/j.intaccaudtax.2008.01.002
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    References listed on IDEAS

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    4. Mark H. Lang & Karl V. Lins & Darius P. Miller, 2003. "ADRs, Analysts, and Accuracy: Does Cross Listing in the United States Improve a Firm's Information Environment and Increase Market Value?," Journal of Accounting Research, Wiley Blackwell, vol. 41(2), pages 317-345, May.
    5. Street, Donna L. & Gray, Sidney J. & Bryant, Stephanie M., 1999. "Acceptance and Observance of International Accounting Standards: An Empirical Study of Companies Claiming to Comply with IASs," The International Journal of Accounting, Elsevier, vol. 34(1), pages 11-48.
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