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Market Reaction to Events Surrounding the Adoption of IFRS in Europe

Author

Listed:
  • Armstrong, Christopher

    (Stanford U)

  • Barth, Mary E.
  • Jagolinzer, Alan D.
  • Riedl, Edward J.

    (Harvard U)

Abstract

This paper examines the European stock market reaction to key events predicted to affect the adoption of International Financial Reporting Standards (IFRS) in Europe, including adoption of the controversial standard on financial instruments, IAS 39. This enables us to assess perceptions of equity investors regarding the relative costs and benefits of increased harmonization under IFRS, as well as the move towards greater use of fair value accounting under IAS 39. Overall, our analyses provide evidence that the European equity markets responded positively (negatively) to events that increased (decreased) the likelihood of adoption of IFRS. This is consistent with European equity investors perceiving that the benefits of harmonized accounting standards under IFRS would outweigh the costs of implementation and any reduced local accounting diversity. As predicted, additional analyses provide evidence that these responses were accentuated for firms not cross-listed in the U.S., suggesting investors perceived greater net benefits would accrue to this type of firm. Overall, our findings are consistent with European equity investors favoring harmonization under IFRS.

Suggested Citation

  • Armstrong, Christopher & Barth, Mary E. & Jagolinzer, Alan D. & Riedl, Edward J., 2006. "Market Reaction to Events Surrounding the Adoption of IFRS in Europe," Research Papers 1937, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:1937
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    References listed on IDEAS

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    1. Barth, Mary E. & Beaver, William H. & Landsman, Wayne R., 2001. "The relevance of the value relevance literature for financial accounting standard setting: another view," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 77-104, September.
    2. Barth, Mary E. & Clinch, Greg & Shibano, Toshi, 1999. "International accounting harmonization and global equity markets1," Journal of Accounting and Economics, Elsevier, vol. 26(1-3), pages 201-235, January.
    3. Joos, P & Lang, M, 1994. "The Effects Of Accounting Diversity - Evidence From The European-Union," Journal of Accounting Research, Wiley Blackwell, vol. 32, pages 141-168.
    4. Ray Ball, 1995. "Making Accounting More International: Why, How, And How Far Will It Go?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 8(3), pages 19-29, September.
    5. Eccher, Elizabeth A. & Ramesh, K. & Thiagarajan, S. Ramu, 1996. "Fair value disclosures by bank holding companies," Journal of Accounting and Economics, Elsevier, vol. 22(1-3), pages 79-117, October.
    6. Beatty, Anne & Chamberlain, Sandra & Magliolo, Joseph, 1996. "An empirical analysis of the economic implications of fair value accounting for investment securities," Journal of Accounting and Economics, Elsevier, vol. 22(1-3), pages 43-77, October.
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    Cited by:

    1. John Ammer & Sara B. Holland & David C. Smith & Francis E. Warnock, 2006. "Look at Me Now: What Attracts U.S. Shareholders?," NBER Working Papers 12500, National Bureau of Economic Research, Inc.
    2. John Ammer & Sara B. Holland & David C. Smith & Francis E. Warnock, 2008. "Why do U.S. cross-listings matter?," International Finance Discussion Papers 930, Board of Governors of the Federal Reserve System (U.S.).
    3. Christensen, Hans B. & Lee, Edward & Walker, Martin, 2007. "Cross-sectional variation in the economic consequences of international accounting harmonization: The case of mandatory IFRS adoption in the UK," The International Journal of Accounting, Elsevier, vol. 42(4), pages 341-379, December.

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    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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