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IFRS adoption, financial reporting quality and cost of capital: a life cycle perspective

Ahsan Habib (Massey University, Auckland, New Zealand)
Md. Borhan Uddin Bhuiyan (Massey University, Auckland, New Zealand)
Mostafa Monzur Hasan (School of Economics and Finance, Curtin University, Perth, Australia)

Pacific Accounting Review

ISSN: 0114-0582

Article publication date: 3 May 2019

Issue publication date: 8 October 2019

Abstract

Purpose

This paper aims to investigate the impact of International Financial Reporting Standards (IFRS) adoption on financial reporting quality and cost of equity. The paper further investigates whether such association varies at different life cycle stages.

Design/methodology/approach

This paper follows the methodologies of DeAngelo et al. (2006) and Dickinson (2011) to develop proxies for the firms’ stages in the life cycle.

Findings

Using both pre- and post-IFRS adoption period for Australian listed companies, the paper finds that financial reporting quality reduced and cost of equity increased because of the adoption of IFRS. The paper further evidences that financial reporting quality in the post-IFRS period increased cost of equity. Finally, the paper finds that mature firms produce a better quality of earnings, which result in lower cost of capital. The results indicate that a mature firm was benefited because of the adoption of IFRS.

Originality/value

The finding of this research is useful to the regulators and practitioners to understand the widespread benefit of IFRS adoption.

Keywords

Citation

Habib, A., Bhuiyan, M.B.U. and Hasan, M.M. (2019), "IFRS adoption, financial reporting quality and cost of capital: a life cycle perspective", Pacific Accounting Review, Vol. 31 No. 3, pp. 497-522. https://doi.org/10.1108/PAR-08-2016-0073

Publisher

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Emerald Publishing Limited

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