Mandatory adoption of IFRS and its effect on international stock listings in Canada

Abstract

Purpose

The purpose of this study is to investigate if non-US/non-Canada (international) equity listings in the Canadian stock exchanges increased with the adoption of International Financial Reporting Standards (IFRS) in Canada. A question of interest is whether the adoption of common global accounting standards (IFRS) was beneficial in attracting international firms to the Canadian exchanges.

Design/methodology/approach

The authors use difference-in-difference ordinary least square methodology to conduct inter-country (between Canada and the USA) and intra-country (between the Toronto Stock Exchange [TSX] and the TSX Venture Exchange [TSXV]) tests to investigate whether there is increased listings of international firms on Canada’s exchanges associated with mandatory adoption of IFRS in Canada compared to such listings in the American exchanges.

Findings

The authors did not find evidence of a relative increase in listings by international firms on the TSX and the TSXV after Canadian adoption of IFRS, but they did find that listings by international firms on the TSX, Canada’s primary exchange, increased when the authors include the year before mandatory Canadian adoption as part of the IFRS adoption period. The authors also find that international listings from outside the North American, European and Australasian regions increased on the TSXV, consistent with IFRS adoption making the smaller Canadian exchange more attractive to listers from these regions.

Originality/value

With the increasing use of IFRS throughout the world, US regulators, the US Congress and other capital market participants seek to understand the costs and benefits of potential IFRS adoption in the USA. The authors contribute to this debate by examining the effect of Canada’s adoption of IFRS on growth in international stock listings in the Canadian stock exchanges.

Citation

Khan, S., Abdou, K. and Ghosh, S. (2020), "Mandatory adoption of IFRS and its effect on international stock listings in Canada", Journal of Financial Regulation and Compliance, Vol. 28 No. 3, pp. 409-429. https://doi.org/10.1108/JFRC-01-2020-0010