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Economic consequences of IFRS convergence: evidence from phased manner implementation in India

Manish Bansal (Indian Institute of Management Ranchi, Ranchi, India)

Journal of Asia Business Studies

ISSN: 1558-7894

Article publication date: 10 February 2022

Issue publication date: 17 January 2023

487

Abstract

Purpose

This study is to examine the economic consequences of International Financial Reporting Standards (IFRS) converged standards by exploring its phased manner implementation in India.

Design/methodology/approach

The study measures the economic outcomes in the form of capital market reactions such as cost of equity capital, cost of debt capital, information asymmetry and market liquidity. Difference-in-difference (DiD) methodology has been used to analyze the data for this study.

Findings

Based on a sample of 2,685 Bombay Stock Exchange (BSE) listed firms, results show that the Indian capital market reacts negatively to the adoption of IFRS-converged standards. In particular, results show that the cost of equity capital, cost of debt capital and information asymmetry have been increased and market liquidity has been decreased for test firms relative to benchmark firms immediately after IFRS convergence and this negative effect is more pronounced among small firms than large firms. Subsequent tests suggest that test firms have better capital market reactions in the later year of implementation relative to benchmark firms that are implementing IFRS for the first time. It indicates the learning curve effect of IFRS on the economic outcomes as negative impact ameliorates over time.

Originality/value

The study is among earlier attempts to investigate the impact of IFRS on capital market reactions by exploring the phased manner implementation framework. The study is also among the pioneering attempts to examine the learning curve impact of IFRS on capital market reactions.

Keywords

Citation

Bansal, M. (2023), "Economic consequences of IFRS convergence: evidence from phased manner implementation in India", Journal of Asia Business Studies, Vol. 17 No. 1, pp. 129-148. https://doi.org/10.1108/JABS-10-2021-0414

Publisher

:

Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

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