Economic Consequences of IFRS Adoption: The Role of Changes in Disclosure Quality

• In Event: Effects of Changes in Standards

Abstract

In this study, we explore the role of changes in disclosure quality stemming from IFRS adoption. Specifically, we adopt the two-step approach recommended by Leuz and Wysocki (2016) to understand the importance of the disclosure channel on the economic consequences of IFRS adoption. Using a difference-in-difference research design, we first document that firms that mandatorily adopt IFRS improve their disclosure quality as measured by the extent of disaggregated information provided in their annual financial statements. Next, we examine whether the observed disclosure changes are related to the benefits and costs of IFRS adoption. We find that, while more disaggregated information provided by firms after IFRS adoption offers incremental capital market benefits (liquidity), all IFRS-adopting firms incur the same costs (audit fees) regardless of the disclosure improvements. Thus, neither all IFRS-adopting countries nor all IFRS-adopting firms within a country reaped net benefits from the adoption.

Authors

• Bin Li, The University of Texas at Dallas

• Gianfranco Siciliano, Bocconi University

• Mohan Venkatachalam, Duke University