International Financial Reporting Standards adoption and information quality: Evidence from Brazil

Abstract

This paper examines whether the mandatory adoption of International Financial Reporting Standards (IFRS) in Brazil in 2010 has improved the value relevance of accounting information, information content of earnings, financial analyst forecasting activities, and liquidity. We examine the variables in the pre‐IFRS mandatory adoption sample period, considered herein as 2008 to 2009, and the post‐IFRS adoption period of 2011 to 2012. We provide evidence demonstrating improvement in value relevance of earnings and number of analysts following the firms in the period after IFRS adoption, but we do not find improvements in information content of earnings, accuracy in analyst forecasting, and liquidity in the post‐adoption period. Our findings suggest a positive relationship between IFRS adoption and some areas of information quality in Brazil. By focusing on one important economy as it takes significant steps toward full convergence with IFRS, our study contributes to the growing literature concerning the impact of IFRS adoption around the world.

Accruals mispricing versus risk: Analyzing the influence of external monitoring in Brazil

“…That is, when they notice that investors are not sophisticated enough to distinguish the earnings quality of one firm from another (Chung et al., 2002). In the Brazilian institutional context that features weak policies to protect minority shareholders and a high concentration of ownership (Eng et al., 2019; Lopes & Walker, 2008), these conditions favor high levels of information asymmetry and managerial opportunistic practices. In this setting, external monitoring can play an important role as an alternative mechanism for corporate governance.…”

“…Unlike developed economies, the institutional characteristics of the Brazilian market—one of the largest emerging economies in the world according to the IMF (IMF, 2019 1 )—have the potential to affect the explanations for the accruals anomaly. Some of Brazil's important institutional characteristics include weak legal and regulatory systems, weak protection policies for minor shareholders and creditors, a high concentration of ownership, a weak corporate governance structure, a historical strong state influence, and low quality of accounting information (Eng et al., 2019; Lopes & Walker, 2008). In addition, in emerging markets, such as Brazil, domestic investors are less sophisticated and more likely to focus on profit as a performance measure, without considering the informational content of its components (Haw et al., 2011).…”

“…While these studies of the accrual anomaly in Brazil have produced mixed results, the studies omitted two important local features: Brazil's weak corporate governance structure (Eng et al., 2019; Lopes & Walker, 2008) and the relatively low sophistication of investors, inherent in emerging markets (Haw et al., 2011). When analyzing risk and accruals mispricing, it is appropriate to consider factors that mitigate opportunistic accounting practices that, consequently, may contribute to reducing discretionary accruals and, therefore, to correctly pricing accruals.…”

Financial forms in integrated reporting as a means of achieving leadership in accounting

“…The Brazilian case contributes specifically to the subset of this literature, which examines individual developing countries with adoption mandates. In order to examine whether the quality of accounting information in Brazil has improved after the adoption of IFRSs in 2010, the quality of accounting comprehensively in various areas, such as accounting relevance, information content of results, forecasting activities for financial analysts and liquidity, should be measured (Eng et al 2019).…”

Accountants’ Perception on the Factors Affecting the Adoption of International Financial Reporting Standards in Yemen

“…Growth in global capital market imposes adoption of the International Financial Reporting Standards (IFRSs) to many countries than ever before (Eng, Lin, & Figueiredo, 2018). Without a doubt, accounting practices have played a crucial role in the efficient functioning of capital markets (Choi & Meek, 2011).…”