Does IFRS increase transparency and consequently increase investor protection?

Does IFRS increase transparency and consequently increase investor protection?

Author: Christoph Sindezingue

Publisher: GRIN Verlag

Published: 2011

Total Pages: 29

ISBN-13: 3656089809

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Studienarbeit aus dem Jahr 2010 im Fachbereich BWL - Investition und Finanzierung, Note: 70/100, Durham University (Durham Business School), Veranstaltung: Research Methods, Sprache: Deutsch, Abstract: Since 2005, the disclosure of consolidated financial statements according to IFRS has been mandatory for all listed companies in the European Union. IFRS supporters claim that a single accounting standard would increase the level of disclosure and hence, increase transparency and therefore investor protection. This paper strives to determine if IFRS increases investor protection through improvements in reporting transparency. Therefore, this paper focuses on the ability of IFRS to decrease earnings management, the main driver of investor protection. The theoretical rationale gives an overview of earnings management, revealing its popularity among management. However, irrespective of the motivation, earnings management reduces the transparency for the investor and thereby reduces investor protection. The review of empirical evidence reveals that voluntary adoption of IFRS leads to a strong decrease in earnings management and an increase in disclosure quality of financial statements. Indeed, the voluntary adoption is biased because the first-time adopters are convinced that a higher transparency could be used to their own advantage. In contrast, the mandatory adoption is not free of ambiguity, but literature tends to conclude that the forced implementation of IFRS leads neither to a reduction of earnings management nor to a higher level of disclosure. Consequently, a mandatory IFRS adoption does not necessarily increase investor protection.


Book Synopsis Does IFRS increase transparency and consequently increase investor protection? by : Christoph Sindezingue

Download or read book Does IFRS increase transparency and consequently increase investor protection? written by Christoph Sindezingue and published by GRIN Verlag. This book was released on 2011 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: Studienarbeit aus dem Jahr 2010 im Fachbereich BWL - Investition und Finanzierung, Note: 70/100, Durham University (Durham Business School), Veranstaltung: Research Methods, Sprache: Deutsch, Abstract: Since 2005, the disclosure of consolidated financial statements according to IFRS has been mandatory for all listed companies in the European Union. IFRS supporters claim that a single accounting standard would increase the level of disclosure and hence, increase transparency and therefore investor protection. This paper strives to determine if IFRS increases investor protection through improvements in reporting transparency. Therefore, this paper focuses on the ability of IFRS to decrease earnings management, the main driver of investor protection. The theoretical rationale gives an overview of earnings management, revealing its popularity among management. However, irrespective of the motivation, earnings management reduces the transparency for the investor and thereby reduces investor protection. The review of empirical evidence reveals that voluntary adoption of IFRS leads to a strong decrease in earnings management and an increase in disclosure quality of financial statements. Indeed, the voluntary adoption is biased because the first-time adopters are convinced that a higher transparency could be used to their own advantage. In contrast, the mandatory adoption is not free of ambiguity, but literature tends to conclude that the forced implementation of IFRS leads neither to a reduction of earnings management nor to a higher level of disclosure. Consequently, a mandatory IFRS adoption does not necessarily increase investor protection.

The Effect of Mandatory Adoption of IFRS on Transparency for Investors

The Effect of Mandatory Adoption of IFRS on Transparency for Investors

Author: Crystal Anderson

Publisher:

Published: 2018

Total Pages: 27

ISBN-13:

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This paper examines the effect of the mandatory adoption of the International Financial Reporting Standards (IFRS) on transparency for investors by measuring the increase in earnings management during the post-adoption period of IFRS. One sign of earnings management is current year earnings being only slightly higher than the previous year's earnings. An increase in earnings management means a decrease in accounting quality and a decrease of transparency for investors. By comparing firms that mandatorily adopted IFRS to similar benchmark firms in terms of strength of legal enforcement, book-to-market ratios, market values and net incomes, I am able to run empirical regressions examining variables of growth, equity issuance, leverage, debt issuance, turnover, size, cash flow, and time period in order to determine the effect of the adoption on IFRS on earnings growth. After looking at 516 firms from 20 countries for the years of 2002-2007, I conclude that IFRS is decreasing financial reporting quality and decreasing transparency for the investing public, and therefore is not accomplishing its goal of bringing efficiency, accountability, and transparency to global financial markets.


Book Synopsis The Effect of Mandatory Adoption of IFRS on Transparency for Investors by : Crystal Anderson

Download or read book The Effect of Mandatory Adoption of IFRS on Transparency for Investors written by Crystal Anderson and published by . This book was released on 2018 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the effect of the mandatory adoption of the International Financial Reporting Standards (IFRS) on transparency for investors by measuring the increase in earnings management during the post-adoption period of IFRS. One sign of earnings management is current year earnings being only slightly higher than the previous year's earnings. An increase in earnings management means a decrease in accounting quality and a decrease of transparency for investors. By comparing firms that mandatorily adopted IFRS to similar benchmark firms in terms of strength of legal enforcement, book-to-market ratios, market values and net incomes, I am able to run empirical regressions examining variables of growth, equity issuance, leverage, debt issuance, turnover, size, cash flow, and time period in order to determine the effect of the adoption on IFRS on earnings growth. After looking at 516 firms from 20 countries for the years of 2002-2007, I conclude that IFRS is decreasing financial reporting quality and decreasing transparency for the investing public, and therefore is not accomplishing its goal of bringing efficiency, accountability, and transparency to global financial markets.

The introduction of IFRS. Consequences for investment decisions

The introduction of IFRS. Consequences for investment decisions

Author: Simon Falcke

Publisher: GRIN Verlag

Published: 2020-07-09

Total Pages: 36

ISBN-13: 3346203107

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Seminar paper from the year 2019 in the subject Business economics - Investment and Finance, grade: 1,0, Otto Beisheim School of Management Vallendar, language: English, abstract: Starting in 2005, the portion of foreign shareholders in the Dax has risen from 45% to 58% in the last decade. In the same year, the regulation of the European Union from 2002 came into effect which required all listed firms in the European Union to report their consolidated accounts in accordance with the International Financial Reporting Standard (IFRS) from 2005 on instead of each countries’ generally accepted accounting standards (GAAP). This is just one example where the volume of investments increased concurrently with the adoption of IFRS. Therefore, the question arises if the mandatory adoption of IFRS in the EU in 2005 or in other cases significantly affected and continues to affect investment decisions among adopters or third parties. In order to better account for differences between different types of investors and investees, we differentiate between retail investors, institutional investors and corporate finance activities. Moreover, we focus on the consequence of IFRS adoption on equity investment decisions as most research appears to focus on the equity instead of the credit market. Additionally, Lourenco & Branco point out that most research which finds no significant effects of IFRS adoption on investment decisions appears to focus on voluntary adoption before 2005. Thus, this paper mainly focuses on mandatory IFRS adoption. In this context, research suggests that mandatory IFRS adopters experience significant capital markets benefits as well as enhanced foreign institutional ownership and enhanced M&A activity. Ultimately, we observe four overarching drivers behind the aforementioned observations that impact investment decisions across different types of investors and investees.


Book Synopsis The introduction of IFRS. Consequences for investment decisions by : Simon Falcke

Download or read book The introduction of IFRS. Consequences for investment decisions written by Simon Falcke and published by GRIN Verlag. This book was released on 2020-07-09 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2019 in the subject Business economics - Investment and Finance, grade: 1,0, Otto Beisheim School of Management Vallendar, language: English, abstract: Starting in 2005, the portion of foreign shareholders in the Dax has risen from 45% to 58% in the last decade. In the same year, the regulation of the European Union from 2002 came into effect which required all listed firms in the European Union to report their consolidated accounts in accordance with the International Financial Reporting Standard (IFRS) from 2005 on instead of each countries’ generally accepted accounting standards (GAAP). This is just one example where the volume of investments increased concurrently with the adoption of IFRS. Therefore, the question arises if the mandatory adoption of IFRS in the EU in 2005 or in other cases significantly affected and continues to affect investment decisions among adopters or third parties. In order to better account for differences between different types of investors and investees, we differentiate between retail investors, institutional investors and corporate finance activities. Moreover, we focus on the consequence of IFRS adoption on equity investment decisions as most research appears to focus on the equity instead of the credit market. Additionally, Lourenco & Branco point out that most research which finds no significant effects of IFRS adoption on investment decisions appears to focus on voluntary adoption before 2005. Thus, this paper mainly focuses on mandatory IFRS adoption. In this context, research suggests that mandatory IFRS adopters experience significant capital markets benefits as well as enhanced foreign institutional ownership and enhanced M&A activity. Ultimately, we observe four overarching drivers behind the aforementioned observations that impact investment decisions across different types of investors and investees.

Investor Protection and the Role of Firm-Level Financial Transparency in Attracting Foreign Investment

Investor Protection and the Role of Firm-Level Financial Transparency in Attracting Foreign Investment

Author: Bowe Hansen

Publisher:

Published: 2015

Total Pages: 46

ISBN-13:

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We ask if companies can attract foreign equity capital by improving the transparency of their financial statements. Using a large panel of firms across fifty-one countries outside the U.S., we show that the answer is yes, but only in countries with relatively high levels of investor protection. In countries with poor investor protection, unilaterally increasing firm-level transparency has no effect on foreign ownership. Furthermore, our results indicate that in countries with higher levels of investor protection the positive association between transparency and foreign ownership is stronger following a country's adoption of the International Financial Reporting Standards.


Book Synopsis Investor Protection and the Role of Firm-Level Financial Transparency in Attracting Foreign Investment by : Bowe Hansen

Download or read book Investor Protection and the Role of Firm-Level Financial Transparency in Attracting Foreign Investment written by Bowe Hansen and published by . This book was released on 2015 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: We ask if companies can attract foreign equity capital by improving the transparency of their financial statements. Using a large panel of firms across fifty-one countries outside the U.S., we show that the answer is yes, but only in countries with relatively high levels of investor protection. In countries with poor investor protection, unilaterally increasing firm-level transparency has no effect on foreign ownership. Furthermore, our results indicate that in countries with higher levels of investor protection the positive association between transparency and foreign ownership is stronger following a country's adoption of the International Financial Reporting Standards.

Transparency Vs. Comparability

Transparency Vs. Comparability

Author: Gregory Sabin

Publisher:

Published: 2019

Total Pages: 33

ISBN-13:

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This paper examines the roles comparability and transparency play in the relation between IFRS adoption and foreign direct investment (FDI). In this study, I disentangle the impact of transparency and comparability through the use of a natural experiment resulting from Mexico's adoption of IFRS in 2012. Greater comparability (adoption of IFRS by both domestic and foreign parties), controlling for transparency (adoption of IFRS by Mexico), increases FDI inflows as reported in column 5 in Table 4. Individually, greater transparency and comparability have been associated with increases in investment activity. However, it is unclear from the existing literature how transparency and comparability interact in the FDI setting. Consistent with prior findings, I find the adoption of IFRS is associated with increases in inbound foreign direct investment. This paper contributes to the literature on IFRS and FDI, specifically with respect to the role of common financial standards in increasing foreign investment activity.


Book Synopsis Transparency Vs. Comparability by : Gregory Sabin

Download or read book Transparency Vs. Comparability written by Gregory Sabin and published by . This book was released on 2019 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the roles comparability and transparency play in the relation between IFRS adoption and foreign direct investment (FDI). In this study, I disentangle the impact of transparency and comparability through the use of a natural experiment resulting from Mexico's adoption of IFRS in 2012. Greater comparability (adoption of IFRS by both domestic and foreign parties), controlling for transparency (adoption of IFRS by Mexico), increases FDI inflows as reported in column 5 in Table 4. Individually, greater transparency and comparability have been associated with increases in investment activity. However, it is unclear from the existing literature how transparency and comparability interact in the FDI setting. Consistent with prior findings, I find the adoption of IFRS is associated with increases in inbound foreign direct investment. This paper contributes to the literature on IFRS and FDI, specifically with respect to the role of common financial standards in increasing foreign investment activity.

The Impact of Institutional Factors and Culture on IFRS Application

The Impact of Institutional Factors and Culture on IFRS Application

Author: Mundher Jabbar Dagher Al-Hamood

Publisher:

Published: 2017

Total Pages: 0

ISBN-13:

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Despite the importance of the IFRS in the international context of financial reporting accounting, we know very little concerning the effects of culture on the application of the IFRS. This dissertation empirically examines whether accounting information comparability and earnings transparency resulting from the IFRS adoption varies depending on cultural and institutional factors. Thus, the discussion considers, whether cultural and institutional factors can provide an explanation for differences in accounting information comparability and earnings transparency under the IFRS. Accordingly, the primary purpose of this dissertation is to investigate the role of secrecy, conservatism, pre-adoption divergence between IFRS and national GAAP, and enforcement on accounting information comparability and earnings transparency following the mandatory IFRS adoption.This dissertation therefore contributes to the accounting literature by presenting two essays. The essays address the research questions related to the goals of the IFRS in relation to two aspects: accounting information comparability and earnings transparency. The first study investigates comparability with regard to secrecy and pre-adoption divergence between IFRS and national GAAP. In this study, it is argued that it is easy to predict whether the IFRS adoption enhances the market reaction of competitors around the earnings announcements of a given firm. The results were documented evidence demonstrating that information transfer at earnings announcements increases following the mandatory adoption of IFRS, suggesting, on average, a high level of comparability. However, following the investigations, it would appear that comparability increases for firms domiciled in countries with a low level of secrecy (i.e., where transparency dominates) and, where there is a low divergence of accounting distance. Consequently, these results suggest that all firms do not apply the IFRS uniformly and that they do not automatically comply with IFRS. The second study investigates earnings transparency by examining the earnings-returns relationship with regard to enforcement and conservatism. In this study, the effects of enforcement and conservatism on earnings transparency were examined following the mandatory adoption of IFRS. The results were documented, which demonstrate that earnings transparency increases for firms domiciled in countries characterized by low conservatism only (i.e., where optimism dominates) and, there are benefits with regard to earnings transparency following IFRS adoption for firms domiciled in countries characterized by a high level of enforcement. This also suggests that IFRS is not being applied in the same way in all countries. Taken together, there are significant cross-country differences in IFRS compliance. Accordingly, comparability and transparency differ depending on where a firm is domiciled. If the firms are domiciled in a supportive environment in terms of applying the IFRS (i.e., where there is transparency, optimism, low divergence of accounting distance and strong enforcement), the level of comparability and transparency are increased.


Book Synopsis The Impact of Institutional Factors and Culture on IFRS Application by : Mundher Jabbar Dagher Al-Hamood

Download or read book The Impact of Institutional Factors and Culture on IFRS Application written by Mundher Jabbar Dagher Al-Hamood and published by . This book was released on 2017 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Despite the importance of the IFRS in the international context of financial reporting accounting, we know very little concerning the effects of culture on the application of the IFRS. This dissertation empirically examines whether accounting information comparability and earnings transparency resulting from the IFRS adoption varies depending on cultural and institutional factors. Thus, the discussion considers, whether cultural and institutional factors can provide an explanation for differences in accounting information comparability and earnings transparency under the IFRS. Accordingly, the primary purpose of this dissertation is to investigate the role of secrecy, conservatism, pre-adoption divergence between IFRS and national GAAP, and enforcement on accounting information comparability and earnings transparency following the mandatory IFRS adoption.This dissertation therefore contributes to the accounting literature by presenting two essays. The essays address the research questions related to the goals of the IFRS in relation to two aspects: accounting information comparability and earnings transparency. The first study investigates comparability with regard to secrecy and pre-adoption divergence between IFRS and national GAAP. In this study, it is argued that it is easy to predict whether the IFRS adoption enhances the market reaction of competitors around the earnings announcements of a given firm. The results were documented evidence demonstrating that information transfer at earnings announcements increases following the mandatory adoption of IFRS, suggesting, on average, a high level of comparability. However, following the investigations, it would appear that comparability increases for firms domiciled in countries with a low level of secrecy (i.e., where transparency dominates) and, where there is a low divergence of accounting distance. Consequently, these results suggest that all firms do not apply the IFRS uniformly and that they do not automatically comply with IFRS. The second study investigates earnings transparency by examining the earnings-returns relationship with regard to enforcement and conservatism. In this study, the effects of enforcement and conservatism on earnings transparency were examined following the mandatory adoption of IFRS. The results were documented, which demonstrate that earnings transparency increases for firms domiciled in countries characterized by low conservatism only (i.e., where optimism dominates) and, there are benefits with regard to earnings transparency following IFRS adoption for firms domiciled in countries characterized by a high level of enforcement. This also suggests that IFRS is not being applied in the same way in all countries. Taken together, there are significant cross-country differences in IFRS compliance. Accordingly, comparability and transparency differ depending on where a firm is domiciled. If the firms are domiciled in a supportive environment in terms of applying the IFRS (i.e., where there is transparency, optimism, low divergence of accounting distance and strong enforcement), the level of comparability and transparency are increased.

Does Mandatory IFRS Adoption Improve Information Quality in Low Investor Protection Countries?

Does Mandatory IFRS Adoption Improve Information Quality in Low Investor Protection Countries?

Author: Noor Houqe

Publisher:

Published: 2017

Total Pages: 34

ISBN-13:

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We empirically examine the effect of IFRS adoption on the information quality of financial reporting in low investor protection countries. We examine the capital markets of France, Switzerland and Sweden, three Western European civil law countries, which are regarded as low investor protection, owing primarily to their respective systems of law according to the World Economic Forum's 2011/2012 Global Competitiveness Report. By utilising and analysing data from 2003 and 2011, we find a significant improvement in both forecast accuracy and forecast dispersion following the mandatory adoption of IFRS in all three of the countries sampled, confirming our hypotheses. These results are robust to an increase in sample size as well as the removal of financial companies from the primary sample. These results suggest that the mandatory adoption of IFRS in low investor protection countries will lead to an improvement in information quality and international comparability.


Book Synopsis Does Mandatory IFRS Adoption Improve Information Quality in Low Investor Protection Countries? by : Noor Houqe

Download or read book Does Mandatory IFRS Adoption Improve Information Quality in Low Investor Protection Countries? written by Noor Houqe and published by . This book was released on 2017 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: We empirically examine the effect of IFRS adoption on the information quality of financial reporting in low investor protection countries. We examine the capital markets of France, Switzerland and Sweden, three Western European civil law countries, which are regarded as low investor protection, owing primarily to their respective systems of law according to the World Economic Forum's 2011/2012 Global Competitiveness Report. By utilising and analysing data from 2003 and 2011, we find a significant improvement in both forecast accuracy and forecast dispersion following the mandatory adoption of IFRS in all three of the countries sampled, confirming our hypotheses. These results are robust to an increase in sample size as well as the removal of financial companies from the primary sample. These results suggest that the mandatory adoption of IFRS in low investor protection countries will lead to an improvement in information quality and international comparability.

The Impact of Legal and Voluntary Investor Protection on the Early Adoption of IFRS.

The Impact of Legal and Voluntary Investor Protection on the Early Adoption of IFRS.

Author: Annelies Renders

Publisher:

Published: 2005

Total Pages: 37

ISBN-13:

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Previous studies (Dumontier and Raffournier, 1998, El-Gazzar et al, 1999; Cuijpers and Buijink, 2004) typically explain the early adoption of IFRS by firm-specific benefits. However, the adoption of IFRS also leads to costs for company insiders, namely less managerial discretion and as a consequence smaller private benefits due to increased disclosure requirements and less accounting method choices. This paper argues that the cost of adopting IFRS depends on characteristics of the institutional environment, more specifically the level of investor protection.Using a sample of European companies, we find that IFRS is more likely adopted in countries with strong laws protecting investors and/or extensive corporate governance recommendations where the loss of private benefits following IFRS-adoption is lower. Furthermore, the results show that corporate governance recommendations are as effective as hard laws in stimulating IFRS-adoption and that their impact increases as laws become weaker. This suggests that by improving corporate governance codes, countries can easily reduce the extraction of private benefits by managers and enhance the quality of the financial information. However, when looking at specific recommendations and laws, we find that shareholder rights with regard to voting rights and the general meeting need to be regulated by law in order to effectively reduce the level of private benefits.


Book Synopsis The Impact of Legal and Voluntary Investor Protection on the Early Adoption of IFRS. by : Annelies Renders

Download or read book The Impact of Legal and Voluntary Investor Protection on the Early Adoption of IFRS. written by Annelies Renders and published by . This book was released on 2005 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: Previous studies (Dumontier and Raffournier, 1998, El-Gazzar et al, 1999; Cuijpers and Buijink, 2004) typically explain the early adoption of IFRS by firm-specific benefits. However, the adoption of IFRS also leads to costs for company insiders, namely less managerial discretion and as a consequence smaller private benefits due to increased disclosure requirements and less accounting method choices. This paper argues that the cost of adopting IFRS depends on characteristics of the institutional environment, more specifically the level of investor protection.Using a sample of European companies, we find that IFRS is more likely adopted in countries with strong laws protecting investors and/or extensive corporate governance recommendations where the loss of private benefits following IFRS-adoption is lower. Furthermore, the results show that corporate governance recommendations are as effective as hard laws in stimulating IFRS-adoption and that their impact increases as laws become weaker. This suggests that by improving corporate governance codes, countries can easily reduce the extraction of private benefits by managers and enhance the quality of the financial information. However, when looking at specific recommendations and laws, we find that shareholder rights with regard to voting rights and the general meeting need to be regulated by law in order to effectively reduce the level of private benefits.

Accounting in Central and Eastern Europe

Accounting in Central and Eastern Europe

Author: Catalin Albu

Publisher: Emerald Group Publishing

Published: 2013-12-05

Total Pages: 358

ISBN-13:

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Countries in Central and Eastern Europe (CEE), most of them former components of the communist bloc, have suffered diverse influences over time. Historically, the advent of communism in the 1950s has stopped the economic and political development of these countries. Its fall during the late 1980s and early 1990s triggered severe changes in the economic and social environment, with profound consequences on the countries' accounting and business models. The accounting regulatory process of these countries has mostly been a public one, although some countries also involved private sector and professional bodies. With economic and political reforms these countries are now reforming their accounting systems with for example the adoption of International Accounting Standards/International Financial Reporting Standards (IFRS). Additionally, the CEE countries' political will to join the European Union compelled the regulators to ensure a high level of harmonization with the European Directives. This volume present theoretical and empirical papers that will further our understanding of accounting issues in CEE countries.


Book Synopsis Accounting in Central and Eastern Europe by : Catalin Albu

Download or read book Accounting in Central and Eastern Europe written by Catalin Albu and published by Emerald Group Publishing. This book was released on 2013-12-05 with total page 358 pages. Available in PDF, EPUB and Kindle. Book excerpt: Countries in Central and Eastern Europe (CEE), most of them former components of the communist bloc, have suffered diverse influences over time. Historically, the advent of communism in the 1950s has stopped the economic and political development of these countries. Its fall during the late 1980s and early 1990s triggered severe changes in the economic and social environment, with profound consequences on the countries' accounting and business models. The accounting regulatory process of these countries has mostly been a public one, although some countries also involved private sector and professional bodies. With economic and political reforms these countries are now reforming their accounting systems with for example the adoption of International Accounting Standards/International Financial Reporting Standards (IFRS). Additionally, the CEE countries' political will to join the European Union compelled the regulators to ensure a high level of harmonization with the European Directives. This volume present theoretical and empirical papers that will further our understanding of accounting issues in CEE countries.

The world price of earnings opacity

The world price of earnings opacity

Author: Uptal Bhattacharya

Publisher:

Published: 2002

Total Pages: 27

ISBN-13: 9789616430258

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Book Synopsis The world price of earnings opacity by : Uptal Bhattacharya

Download or read book The world price of earnings opacity written by Uptal Bhattacharya and published by . This book was released on 2002 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: