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

Abstract

Stock price synchronicity since the adoption of International Financial Reporting Standards (IFRS) has been significant due to its strong relationship with the economic development and capital market stability of a country. Using data from 2006-2011, the study examines whether the mandatory adoption of IFRS reduces stock price synchronicity in the Asian context. The study utilizes a sample of 1,800 firm-year observations for firms in four Asian markets-China, Hong Kong, Israel, and the Philippines-where IFRS have been mandatory since 2009. The empirical model, relating to stock price synchronicity with the adoption of IFRS, and other firm-specific control variables were analysed using both univariate and multivariate techniques. 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 markets. The empirical results support the argument that, for all four markets considered, IFRS adoption improves the information environment through the capitalization of firmspecific information into stock prices, thereby reducing the stock price synchronicity. Along with IFRS adoption, other firm-specific control variables are found to have significant influence on stock price synchronicity, such as cross-listings in foreign stock exchanges in China and Philippines, the Herfindahl index in Hong Kong, and the percentage of foreign sales in Israel.

Financial market consequences of early adoption of international standards on auditing: international evidence

“…This means that H6 has been statistically accepted. This result is consistent with previous studies (Chau et al , 2013; Patro and Gupta, 2016; Chalmers et al , 2011; Nulla, 2014) that suggested that the level of stock market volatility has been significantly decreased post the adoption of international accounting and auditing standards. This appears to imply that both the international accounting and auditing standards have the same negative and significant impact on reducing stock price volatility and make stock markets more stable, which can attract more foreign investors.…”

“…This result indicates that H5 is rejected. Even though the negative coefficient on SMRT tends to support the existing IFRS literature (Patro and Gupta, 2016; Key and Kim, 2017; Klimczak, 2011) that suggested a negative and significant association between the adoption of international accounting innovations and stock market returns, yet, it contradicts the findings of other IFRS studies that found a significant and positive association between IFRS adoption and stock market returns (Escaffre and Sefsaf, 2011; Loureiro and Taboada, 2012; Yip and Young, 2012; Adereti and Sanni, 2016; Erin et al , 2017; Bartov et al , 2005). In this regard, Barth et al (2008) explained two potential reasons of such a negative association between ISAs adoption and stock market returns to include: ISAs may be of lower quality as compared with domestic auditing standards; and other features of financial reporting system can mitigate potential development in the quality of auditing information because of the existence of higher quality auditing standards (Key and Kim, 2017).…”

Adequacy of Accounting Information Disclosures of Nigerian Quoted Firms Under IFRS Adoption

“…Empirical evidence from the literature indicate positive consequences associated with the mandatory adoption of IFRS (Patro and Gupta, 2016). Armstrong et al (2010) document incrementally positive reactions associated with events related to IFRS adoption for firms with lower pre-adoption information quality and higher information asymmetry, which suggests that investors perceive that IFRS will lead to improvements in information quality.…”

“…Thus, for the adoption of IFRS to improve investment, the level of development of the adopting countries must be put into consideration (Efobi et al, 2014). Empirical evidence from existing literature indicates positive results associated with the mandatory adoption of IFRS by countries (Patro and Gupta, 2016). Armstrong et al (2010) documented continuous positive reactions related to IFRS adoption for firms with lower pre-adoption information quality and higher information asymmetry.…”

Financial Reporting Quality and Shareholders’ Wealth Maximization: Evidence from listed Companies in Nigeria

“…Nevertheless, despite more than 20 years prior studies on the issue (Bamidele, Ibrahim and Omole, 2018), there has been contradictions in the results. Whereas many of these prior empirical studies have reached the conclusion that there is a positive association between financial reporting quality and SHWM (for example Adetula, Owolabi & Onyinye, 2014;Hassan, 2015), there has also been several other studies resulting in negative association (Chao-Jung, 2015;Patro & Gupta, 2016) and yet some reported neutral and non-significant results (for example, Duarte & Azevedo 2015) or mixed relationships (Fariba & Mehran, 2016;Taouab, Ahsina & Daghi, 2014). The reason behind these contradictions could be explained by the inconsistences or vagueness in the construct of the measurement aimed at capturing financial reporting quality and earnings per share (Callan & Thomas, 2009).…”