Impact of International Financial Reporting Standards on Cost of equity Capital for Asian countries

Abstract

The present study examines whether adoption of IFRS reduces Cost of equity Capital for firms in Asia. The sample consists of firms from four Asian Countries, namely China, Hong Kong, Israel and Philippines, where IFRS has been made mandatory. Data for six years covering the period from 2006-2011 has been taken for analysis. Different types of panel data estimates were used and compared so as to interpret the results with the best suited parameters for different data sets for different countries. The results vary for different countries. The firms in Hong Kong and Philippines get benefit from the reduction in their cost of equity capital after adopting IFRS, but for firms in China and Israel cost of equity capital increased. It is also evident from the study that other firm specific control variables have no impact on cost of equity capital. The study contributes to the understanding of economic consequences of adopting IFRS across Asian countries. The findings would be important not only to countries that have already adopted IFRS, but also to countries that are in the process of adopting the standard. The outcomes will have important implications for the regulators, practitioners, academicians and auditors, as well as end-users of financial statements.

Intellectual capital reporting and mandatory adoption of post-IFRS – An empirical analysis using computational linguistic tools

“…The above potential benefits along with greater "willingness and capability" of reporting are expected to motivate firms to disclose their ICR better, most of which is in the form of narrative in firm documents. Contrary to the above, Patro and Gupta (2014) found only two countries (out of four studied) with lower cost of equity post-IFRS.…”

Cost of Agricultural Business Equity Capital—A Theoretical and Empirical Study for Poland

“…Ng and Zabihollah (2015) considered the link between the cost of capital and the overall sustainability of business undertakings, with due consideration of environmental and social factors, and concluded that the correlation between sustainable growth and cost of equity capital tends to strengthen with the increase in performance. Padro and Gupta (2014), having conducted their studies in the Asian countries, point to the significance of adopting international accounting standards for determining the cost of capital. Prior research of Easley and O'Hara (2004) argues that not only the scope of information presented but also the structure of information was relevant for determining the cost of capital (this was certainly related to the measurement of the value of assets).…”

Impact of International Financial Reporting Standards on Stock Price Synchronicity for Asian Markets

“…Accounting quality also increases as there is a lower chance of earning management in the financial statements (Bartov, Goldberg, & Kim, 2005), more foreign mutual funds investments are attracted (Covrig, Defond, & Hung, 2007), efficiency increases in the form of debt contracting (Kim & Shi, 2012), and forecasting errors are reduced by the financial analysis (Ashbaugh & Pincus, 2001). The cost of equity capital decreased for Asian countries after adopting IFRS (Patro & Gupta, 2014). The present paper contributes to this stream of literature by focussing on the impact of IFRS adoption on stock price synchronicity 1 in China, Hong Kong, Israel, and the Philippines (hereafter, "the selected Asian markets").…”