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The economic effects of IFRS adoption in Korea

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  • Soo Young Kwon
  • Kyunga Na
  • Jongil Park

Abstract

This paper examines whether Korea’s mandatory adoption of International Financial Reporting Standards (IFRS) is associated with higher earnings quality. Based on Korean listed companies, we compare earnings quality and market assessment in the pre-IFRS period (2007–2010) with those in the post-IFRS period (2011–2014). We find significant IFRS adoption effects by documenting smaller absolute values in discretionary accruals and real earnings management, higher accrual quality, stronger earnings persistence, and less frequent negative earnings. Thus, we provide evidence of improved earnings quality with Korea’s mandatory IFRS adoption. Additionally, we document an increase in the value relevance of earnings, more accurate analysts’ earnings forecasts, and higher audit fees and hours. These results show that investors and analysts view improvements in the information environment, and auditors’ respond to the complex environment by demanding higher audit fees and making additional efforts after mandatory IFRS adoption.

Suggested Citation

  • Soo Young Kwon & Kyunga Na & Jongil Park, 2019. "The economic effects of IFRS adoption in Korea," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 26(4), pages 321-361, July.
    • Handle: RePEc:taf:raaexx:v:26:y:2019:i:4:p:321-361
    DOI: 10.1080/16081625.2017.1298454
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    Citations

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    Cited by:

    1. Muhammad Shahin Miah & Haiyan Jiang & Asheq Rahman & Warwick Stent, 2023. "The impact of IFRS complexity on analyst forecast properties: The moderating role of high quality audit," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 902-928, January.
    2. Cho, Meeok & Kim, Sehee & Kim, Yewon & Lee, Bryan Byung-Hee & Lee, Woo-Jong, 2021. "IFRS adoption and stock misvaluation: Implication to Korea discount," Research in International Business and Finance, Elsevier, vol. 58(C).
    3. Cho, Joe (Joonghi) & Kim, Heejung, 2024. "Does a consistently capitalized R&D ratio improve information effects of capitalized development expenditures?," International Review of Financial Analysis, Elsevier, vol. 93(C).
    4. Lee, Woo Jae & Choi, Seung Uk, 2024. "The effect of the new revenue recognition principle (IFRS 15) on financial statement comparability: Evidence from Korea," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 54(C).
    5. Akarsh Kainth & Ranik Raaen Wahlstrøm, 2021. "Do IFRS Promote Transparency? Evidence from the Bankruptcy Prediction of Privately Held Swedish and Norwegian Companies," JRFM, MDPI, vol. 14(3), pages 1-15, March.

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