IFRS and value relevance: A comparison approach before and after IFRS conversion in the European countries

Abstract

Purpose

The purpose of this paper is to compare the value relevance of accounting information between International Financial Reporting Standards (IFRS)-firms and non-IFRS-firms over five years before mandatory IFRS adoption from 2000 to 2004 and six years after IFRS adoption from 2006 to 2011.

Design/methodology/approach

The sample includes 1166 firm-year observations that cover firms from three Europeans countries. Different econometric tests, multivariate and panel regressions have been used to verify the hypotheses.

Findings

In the pre-IFRS period, voluntary IFRS adoption did not improve the value relevance of accounting information. The results indicate that the information contents of non-IFRS-firms in the post-adoption period have higher quality than in the pre-adoption period. The findings show a higher association between accounting information, stock prices and stock returns over both periods, however, the difference in results is not statistically significant.

Research limitations/implications

This study was not generalized to other stock exchanges that have a significant weight in the European Union, such as the FTSE 100 companies or the SP/MIB.

Practical implications

This study has some implications for standards setters, firms and practitioners. The transition to IFRS reduces the diversity of accounting systems and institutional conditions (capital market structure, Taxation systems). In addition, mandatory IFRS adoption engendered changes in firms’ business and organizational models that led accountants to improve their educational and training programs.

Originality/value

This paper contributes to the value relevance as well as IFRS literature by using a sample from code-law origin countries that switched from a debt-oriented system to shareholder-oriented system. It offers a comparative approach between IFRS-firms and Non-IFRS-firms in the pre- and post-adoption periods. In contrast, prior studies focused on the comparison during only one period. This empirical evidence should be of interest to investors and policymakers in other markets.

Citation

Kouki, A. (2018), "IFRS and value relevance: A comparison approach before and after IFRS conversion in the European countries", Journal of Applied Accounting Research, Vol. 19 No. 1, pp. 60-80. https://doi.org/10.1108/JAAR-05-2015-0041