The International Financial Reporting Standards 9 financial instruments, information quality and stock returns in the modern technology era

Abstract

Purpose

This paper investigates the relationship between information quality and stock returns during the International Financial Reporting Standards (IFRS 9) pre-adoption announcements and examines the influence of modern technology on these relationships across 24 emerging countries.

Design/methodology/approach

This paper conducts an event study using data obtained from the DataStream, Osiris, International Telecommunication Union (ITU) and the World Bank databases from 2009 to 2014. The non-linear generalized additive model (GAM) was implemented to test the study hypotheses.

Findings

Results indicate a significant positive non-linear relationship between low information quality and stock returns during IFRS 9 pre-adoption announcements. This result implies that IFRS 9 announcements have a positive impact on corporations with low pre-adoption quality information. This result is also more pronounced in small rather than large corporations and financial rather than nonfinancial institutions. Furthermore, modern technology plays a significant decisive antecedent role, while industry type has a moderating effect on the relationship between information quality and stock returns. The codified legal system has a positive impact on stock returns across emerging countries.

Research limitations/implications

Data unavailability in some emerging countries.

Practical implications

The empirical evidence provides useful guidelines for corporate managers, investors, international accounting standard-setters and regulators to improve financial reporting practices.

Originality/value

This paper extends the work of Armstrong et al. (2010); Onali et al. (2017) by including the impact of non-linear relationships using GAM analysis and the role of modern technology across emerging countries.

Citation

ElKelish, W.W. (2021), "The International Financial Reporting Standards 9 financial instruments, information quality and stock returns in the modern technology era", Journal of Applied Accounting Research, Vol. 22 No. 3, pp. 465-483. https://doi.org/10.1108/JAAR-12-2019-0164