The Market Reaction to the Adoption of IFRS in the European Insurance Industry

International Financial Reporting Standards' (IFRS) application peculiarities: a case study

“…Hence, this standard tells us the rules for recognizing non-current assets held for sale in firms, as well as the right to dispose of such assets from the company's statement of financial position. According to IFRS 5, a company needs to classify non-current assets as assets for sale if their carrying amount will be compensated primarily through the sale and not through the continued use of this non-current asset (Abdallah et al, 2018;Di Fabio, 2018). However, there are a few exceptions that should never be considered non-current assets held for sale: 1) deferred tax assets (IAS 12 Income Tax); 2) assets arising from employee benefits (IAS 19 Employee Benefits); 3) financial assets within the framework of IFRS 9 "Financial Instruments"; 4) non-current assets that are accounted following the fair accounting model -the value specified in IAS 40 Investment Property; 5) non-current assets measured at fair value fewer costs to selling following IAS 41 Agriculture; 6) rights arising from insurance contracts as defined in IFRS 4 Insurance of Contracts.…”

Earnings Persistence and Market Reaction to Earnings in the International Insurance Industry

“…The market reaction to accounting information is not homogeneous across all firms, industries, countries, and accounting standards. Firm-level heterogeneity plays a significant role in how the market reacts, especially in firms with a greater degree of information asymmetry and operating complexity, such as the insurance industry (Abdallah, Abdallah, & Salama, 2018). In this regard, Polonchek and Miller (1999) argue that, historically, investors of insurance companies were relatively uninformed, "since the perceived risk of holding insurance company securities was low and the perceived quality of insurance company assets was high" (Polonchek & Miller, 1999, p. 459).…”

“…The empirical models are well supported by previous literature and fixed-effects and polled OLS procedures are applied to an unbalanced panel with clustered robust standard errors estimation and additional estimation procedures were also conducted and discussed. Abdallah, Abdallah, and Salama (2018) highlight several aspects to make a cross-country analysis of the insurance industry an interesting and challenging setting to examine earnings properties and investors' reaction to accounting information: first, assets and liabilities of insurance firms are opaque, making the evaluation of firms both difficult and costly. Second, since most of insurance firms' assets and liabilities are financial instruments, fair value accounting and its impacts are relevant to investors.…”

“…Third, insurance accounting varies significantly across jurisdictions, hindering investors' ability to make comparisons across firms, countries, and insurance subindustries. Finally, the operating complexity and inherent risk of insurance firms create information problems between investors and firms (Abdallah et al, 2018).…”

“…As a consequence, this paper includes control variables and specific cross-segment analysis. In particular, financial figures and risk of life and non-life insurance companies vary significantly between them (Polonchek & Miller, 1999) and earnings of non-life insurance firms are more volatile and cannot be readily predicted when compared to life-insurers, compelling investors in non-life insurers to demand higher quality financial reporting to compensate the added risk (Abdallah et al, 2018).…”