Security Returns and Volume Responses around International Financial Reporting Standards (IFRS) Earnings Announcements

• In Event: Financial Reporting

Abstract

Abstract: This paper examines and interprets the security market response around IFRS-based earnings announcements of UK cross-listed firms that trade as American Depository Receipts (ADR) in the US equity markets. How US market participants react to IFRS earnings disclosures is important to regulators (e.g., the SEC and the FASB) in their task in improving comparability of financial reporting. As predicted, I find evidence of significant price and trading responses on day t = 0 and +1, which suggests that IFRS earnings news help facilitate the price and trading adjustment process. The immediate price reaction over the 3-day announcement window on average is 41.8 percent for IFRS earning news, whereas it is 79 percent for US GAAP earnings news. These suggest that investors recognize only less than 42 percent of the full value implications of IFRS earning disclosures. These suggest that investors recognize only less than 42 percent of the full value implications of IFRS earning disclosures, indicating that US investors do not fully understand the qualitative aspects of IFRS.

Author

• Kingsley O Olibe, Kansas State University