Mandatory IFRS Adoption and Management Forecasts

• In Event: IFRS Adoption

Abstract

Using a difference-in-difference research design, we find that firms in countries that mandated IFRS are significantly more likely to provide management forecasts following IFRS adoption than firms in countries not mandating IFRS. This increase is greater for firms in countries with more differences between domestic GAAP and IFRS and in countries with greater IFRS implementation credibility. In addition, we find that the increase in the forecast likelihood is positively related to the country’s equity market development level and negatively related to the firm’s number of exchange listings. Also, firms’ higher tendency to issue management forecasts after IFRS adoption appears permanent. Finally, we find that management forecasts have a significantly higher increase in price informativeness upon IFRS adoption in countries with stronger legal enforcement. The evidence suggests that mandatory IFRS adoption changes firms’ voluntary disclosure behavior through the changes it brings to firms’ capital market environments.

Authors

• Jeff Ng, The Chinese University of Hong Kong

• Albert Tsang, The Chinese University of Hong Kong

• Yong Yang, The Chinese University of Hong Kong