Russian Accounting System: Value-Relevance of Reported Information and Early Evidence on IFRS Adoption Benefits

• In Event: Concurrent Session 2.3: Reverse Mergers

Abstract

In this study I examine the value-relevance of accounting information reported by public firms in Russia. I document that information incorporated in book value of equity is value-relevant, while the evidence with respect to reported earnings is mixed. Additionally, investors react differently to information produced by firms listed on two major exchanges – RTS and MICEX, the latter being the secondary equity listing exchange in Russia. Second, I do not find evidence that value-relevance of information increased over time and contrary to the prediction, investors react less favorably to information reported by public firms in the period of 2005-2010, compared to the early period of 1995-2004. These findings are explained by the uncertainty with respect to the commitment to adopt IFRS, from which Russia backed up in 2005 and to which the global investment community responded by outflow of investments. In 2011 the Russian government signed off the IFRS adoption procedure whereby public firms would have to prepare consolidated financial statements in accordance with IFRS starting from 2012. I perform an ex-ante analysis and document superior value-relevance of accounting information reported in accordance with IFRS, compared to the local standards, suggesting that Russian firms are expected to benefit from IFRS adoption. The study is the first empirical work to examine information dynamics of the Russian market, and the findings have important implications to other emerging nations, standard setters, and the market participants.

Author

• Oksana Kim, Minnesota State University Mankato