IFRS Adoption, Product Market Competition, and Stock Price Informativeness

• In Event: Product market competition and IFRS adoption
  In Paper Session: Product Mmarket Competition and IFRS Adoption

Abstract

This study examines the effect of mandatory IFRS adoption on the relationship between the product market competition and informativeness of stock prices. In this study, we find that competition in firms’ product markets is negatively associated with their stock price informativeness in equity markets in Europe. We also find that price informativeness is affected by the interaction between extrinsic changes in regulatory environment of mandatory IFRS adoption and intrinsic individual firm product market competition. IFRS adoption improves the informativeness of stock prices of firms operating in more competitive markets, regardless of the strength of the legal enforcement within each country or the country-level GAAP-IFRS differences. However, the positive effect of IFRS is more significant for a firm that has relatively smaller size of total assets. Robustness checks support these results and show the improvement effect is persistent.

Authors

• Jing Wang, Kent State University

• Wei Li, Kent State University