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Value relevance of IFRS mandatory disclosure requirements

Author

Listed:
  • Ioannis Tsalavoutas
  • Dionysia Dionysiou

Abstract

Purpose - – The purpose of this paper is to address recent calls for research regarding the valuation implications of mandatory disclosure requirements (cf. Hassanet al., 2009; Leuz and Wysocki, 2008; Schipper, 2007). Design/methodology/approach - – The paper measures compliance with all International Financial Reporting Standards (IFRS) mandatory disclosure requirements for a sample of firms. The paper subsequently explores whether the compliance scores (i.e. the mandatory disclosure levels) are value relevant and whether the value relevance of accounting numbers differs across high- and low-compliance/disclosure companies. Findings - – The paper finds that the levels of mandatory disclosures are value relevant. Additionally, not only the relative value relevance (i.e.R2) but also the valuation coefficient of net income of high-compliance companies is significantly higher than that of low-compliance companies. Research limitations/implications - – This paper is an indicative single country case study that focuses on the IFRS adoption year (2005) in the EU. It forms a new avenue for research regarding the valuation implications of mandatory disclosure requirements. It remains to future research to examine whether the findings also hold in other countries and periods. Practical implications - – These findings are expected to be particularly relevant to standard setters and regulatory bodies that are concerned about the implications of mandatory disclosure requirements (Schipper, 2007). Originality/value - – To the best of authors’ knowledge, this is the first paper that examines the value relevance implications of IFRS mandatory disclosure requirements, focusing on European country after 2005. The authors indicate that IFRS mandatory disclosures do lead to more transparent financial statements (cf. Pownall and Schipper, 1999), mitigating concerns about companies’ fundamentals (cf. Anctilet al., 2004).

Suggested Citation

  • Ioannis Tsalavoutas & Dionysia Dionysiou, 2014. "Value relevance of IFRS mandatory disclosure requirements," Journal of Applied Accounting Research, Emerald Group Publishing Limited, vol. 15(1), pages 22-42, May.
  • Handle: RePEc:eme:jaarpp:v:15:y:2014:i:1:p:22-42
    DOI: 10.1108/JAAR-03-2013-0021
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    Citations

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    Cited by:

    1. Maigoshi, Zaharaddeen Salisu & Latif, Rohaida Abdul & Kamardin, Hasnah, 2018. "Change in value-relevance of disclosed RPT across accounting regimes: Evidence from Malaysia," Research in International Business and Finance, Elsevier, vol. 44(C), pages 422-433.
    2. Jonas Oliveira & Graça Azevedo & Bertina Oliveira, 2018. "Impairment Losses: The Impact of First‐time Adoption of the Accounting Standardisation System in Portugal," Australian Accounting Review, CPA Australia, vol. 28(4), pages 556-576, December.
    3. Gonçalves, Rute & Lopes, Patrícia & Craig, Russell, 2017. "Value relevance of biological assets under IFRS," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 29(C), pages 118-126.
    4. Dana Kubickova & Irena Jindrichovska, 2016. "Comparability and Reliability of Financial Information in the Sector of Czech SMES (ten years of IFRS as a part of Czech accounting context)," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 64-77.
    5. MNIF, Yosra & TAHARI, Marwa, 2022. "Audit committee characteristics and compliance by Islamic banks with AAOIFI accounting standards," Advances in accounting, Elsevier, vol. 57(C).
    6. Habeeb Mohamed Nijam & Athambawa Jahfer, 2018. "IFRS Adoption and Value Relevance of Accounting Information: Evidence from a Developing Country," Global Business Review, International Management Institute, vol. 19(6), pages 1416-1435, December.
    7. Abel Oghenevwoke Ideh & Edirin Jeroh & Orits Frank Ebiaghan, 2021. "Board Structure of Corporate Organizations and Earnings Management: Does Size and Independence of Corporate Boards Matter for Nigerian Firms?," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 12(1), pages 329-338, January.
    8. Niclas Hellman & Jordi Carenys & Soledad Moya Gutierrez, 2018. "Introducing More IFRS Principles of Disclosure – Will the Poor Disclosers Improve?," Accounting in Europe, Taylor & Francis Journals, vol. 15(2), pages 242-321, May.
    9. Tsalavoutas, Ioannis & Tsoligkas, Fanis & Evans, Lisa, 2020. "Compliance with IFRS mandatory disclosure requirements: A structured literature review," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 40(C).
    10. Jude Edeigba & Christopher Gan & Felix Amenkhienan, 2020. "The influence of cultural diversity on the convergence of IFRS: evidence from Nigeria IFRS implementation," Review of Quantitative Finance and Accounting, Springer, vol. 55(1), pages 105-121, July.
    11. Agnieszka Judkowiak, 2021. "Disclosure Practices of Information in the Field of Financial Instruments: Evidence from Polish Companies Listed in the Warsaw Stock Exchange," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 1), pages 468-493.
    12. Mazzi, Francesco & Slack, Richard & Tsalavoutas, Ioannis, 2018. "The effect of corruption and culture on mandatory disclosure compliance levels: Goodwill reporting in Europe," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 31(C), pages 52-73.

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