Does Mandatory Adoption of International Financial Reporting Standards in the European Union Reduce the Cost of Equity Capital?

2009 ◽  
Author(s):  
Siqi Li
Keyword(s):  
European Union ◽  
Financial Reporting ◽  
Equity Capital ◽  
Reporting Standards ◽  
The European Union ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Financial Reporting Standards ◽  
Mandatory Adoption ◽  
The Cost

Does Mandatory Adoption of International Financial Reporting Standards in the European Union Reduce the Cost of Equity Capital?

2010 ◽  
Vol 85 (2) ◽  
pp. 607-636 ◽  
Author(s):  
Siqi Li
Keyword(s):  
Financial Reporting ◽  
Equity Capital ◽  
Reporting Standards ◽  
The European Union ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Financial Reporting Standards ◽  
Legal Enforcement ◽  
Mandatory Adoption ◽  
The Cost

ABSTRACT: This study examines whether the mandatory adoption of International Financial Reporting Standards (IFRS) in the European Union (EU) in 2005 reduces the cost of equity capital. Using a sample of 6,456 firm-year observations of 1,084 EU firms during the 1995 to 2006 period, I find evidence that, on average, the IFRS mandate significantly reduces the cost of equity for mandatory adopters by 47 basis points. I also find that this reduction is present only in countries with strong legal enforcement, and that increased disclosure and enhanced information comparability are two mechanisms behind the cost of equity reduction. Taken together, these findings suggest that while mandatory IFRS adoption significantly lowers firms' cost of equity, the effects depend on the strength of the countries' legal enforcement.

Does IFRS adoption decrease the cost of equity of the global tourism firms?

2017 ◽  
Vol 23 (8) ◽  
pp. 1615-1631
Author(s):  
Zhi-Yuan Feng ◽  
Ying-Chieh Wang ◽  
Hua-Wei Huang
Keyword(s):  
Financial Reporting ◽  
Equity Capital ◽  
Tourism Industry ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
Legal Enforcement ◽  
Global Tourism ◽  
The Cost

This article answers the question of whether the adoption of International Financial Reporting Standards (IFRS) reduces the cost of equity capital, with a focus on the tourism industry. We employ a set of global tourism companies and find that mandatory IFRS adoption has a significantly negative relation with the cost of equity capital. However, we find that this relation is varied with different business cultures and geographic areas. Moreover, from interactive analyses of country institutions for the relation between mandatory IFRS adoption and tourism firm’s cost of equity, we show that adopting IFRS complements the deficiencies of various country institutions, such as investor protection, the strength of legal enforcement, and corporate governance.

The Effect of Mandatory Adoption of IFRS on Earnings Quality: Evidence from the European Union

2012 ◽  
Vol 11 (2) ◽  
pp. 1-25 ◽  
Author(s):  
Daniel Zeghal ◽  
Sonda M. Chtourou ◽  
Yosra M. Fourati
Keyword(s):  
European Union ◽  
Earnings Management ◽  
Financial Reporting ◽  
Value Relevance ◽  
Earnings Quality ◽  
The European Union ◽  
Accounting Quality ◽  
Financial Reporting Standards ◽  
Accounting Numbers ◽  
Mandatory Adoption

ABSTRACT This paper addresses the question whether the mandatory adoption of International Financial Reporting Standards (IFRS) is associated with higher accounting quality. More specifically, we investigate whether the application of IFRS in 15 European Union (EU) countries is associated with less earnings management and higher timeliness, conditional conservatism, and value relevance of accounting numbers. Our results suggest that there has been some improvement in accounting quality between the pre- and post-IFRS adoption periods. In particular, we find that firms exhibit an increase in the accounting-based attributes, but a decrease in the market-based after the adoption of IFRS in 2005. Interestingly, the findings are more pronounced for the firms in countries where the distance between the pre-existing national GAAP and IFRS is important. Furthermore, we are unable to identify any change within firms that have converged their local GAAP toward IFRS before the mandatory transition.

The impact of mandatory IFRS adoption on capital markets: evidence from Korea

2018 ◽  
Vol 26 (1) ◽  
pp. 38-58 ◽  
Author(s):  
Saerona Kim ◽  
Haeyoung Ryu
Keyword(s):  
Financial Reporting ◽  
Financial Statements ◽  
Joint Effect ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Content Type ◽  
Ifrs Adoption ◽  
The Cost ◽  
The Impact

Purpose The purpose of this paper is to examine the effects of adoption of the mandatory International Financial Reporting Standards (IFRS) on the cost of equity capital in a unique Korean setting. In Korea, individual financial statements were taken as primary financial statements. Before the adoption of IFRS, consolidated financial statements were taken as supplementary financial statements. Design/methodology/approach The authors measure the cost of equity using the average estimates from the implied cost of capital models proposed by Claus and Thomas (2001), Gebhardt et al. (2001), Easton (2004) and Ohlson and Juettner-Nauroth (2005), using it as the primary dependent variable. Mandatory IFRS adoption, the independent variable in this study, is assigned a value of 1 for the post-adoption period and 0 otherwise. Findings Using a sample of listed Korean companies during the period from 2000 to 2013, the authors find evidence of a significant reduction in the cost of equity capital in Korean listed companies after mandatory adoption of the IFRS in 2011, after controlling for a set of market variables. Originality/value This study is one of a growing body of literature on the relations between mandatory IFRS adoption and the cost of equity capital (Easley and O’Hara 2004; Covrig et al. 2007; Lambert et al. 2007; Daske et al. 2008). According to the results of this study, increased financial disclosure and enhanced information comparability, along with changes in legal and institutional enforcement, seem to have had a joint effect on the cost of equity capital, leading to a large decrease in expected equity returns.

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

2014 ◽  
Vol 1 (1) ◽  
pp. 148 ◽  
Author(s):  
Prof. Archana Patro ◽  
Prof. V. K. Gupta
Keyword(s):  
Hong Kong ◽  
Financial Reporting ◽  
Financial Statements ◽  
Equity Capital ◽  
Economic Consequences ◽  
Data Sets ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Asian Countries ◽  
Financial Reporting Standards

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. 

scholarly journals Does Mandatory Ifrs Adoption and Macroeconomic Factors Affect Cost of Equity Capital? Empirical Evidence From South African Listed Firms

2019 ◽  
Vol 5 (1) ◽  
pp. 57-70
Author(s):  
Michael Yeboah ◽  
Andrast Akacs
Keyword(s):  
Information Asymmetry ◽  
South African ◽  
Equity Capital ◽  
Reporting Standards ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Data Set ◽  
Managerial Opportunism ◽  
Ifrs Adoption ◽  
The Cost

Purpose: This paper investigates the collaboration of International Financial Reporting Standards (IFRS) adopted and macroeconomic variables interaction with information asymmetry, analysts following and managerial opportunism affecting the cost of equity capital, and also influence investor’s decision taking on companies in South Africa. Design/Approach: A sample of 49 listed Johannesburg mining and manufacturing firms was extracted from archival database of INET BFA/IRESS SA, Morningstar, and Anupedia. A leverage fixed effects panel data set of firms from 2001 to 2014 was examined, which shows that Breusch-Lagrange Multiplier tests and the test of over-identifying restrictions used, form the basis of the content analysis of the most recent IFRS effect after mandatory adoption. We used a hand-collected dataset between 2000 and 2015. Findings: Our findings suggest that a significant association is found between IFRS and its interactions with managerial opportunism and integrity but with a reasonable statistical effect.  However, the IFRS adoption effect on the cost of equity capital of South African firms’ has no significant effect. Practical implications: This study reveals that most firms report more, the credibility of annual financial statements which may not be sufficient because of the qualitative data for an assessment of managerial opportunism, information asymmetry and analysts following.  Of such myopia of company managers, their reputation causes agency problems and as a result, shareholders interest is mainly focused on improving reporting standards Originality: The research considers dual harmonizing facets: first, that the interaction with IFRS adoption and economic factors impact on the cost of equity capital may be so pathetic and obvious; and second, that IFRS moderation impacts on the cost of equity capital in Sub- Saharan African. This finding should be meaningful to managers, analysts, policymakers, and supervisory bodies in nations with similar capital structure decisions and socioeconomic systems.

Audit committee ownership and the cost of equity capital

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ahsan Habib ◽  
Md. Borhan Uddin Bhuiyan ◽  
Julia Y.H. Wu
Keyword(s):  
Firm Performance ◽  
Financial Reporting ◽  
Audit Committee ◽  
Reporting Quality ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Data Set ◽  
Content Type ◽  
The Cost

Purpose This paper aims to investigate whether audit committee ownership (consisting of both equity holdings and option holdings) is associated with the cost of equity capital. Design/methodology/approach This paper uses regression analysis to examine the association between audit committee ownership and the cost of equity capital. The data set consists of 2,825 firm-year observations for companies listed on the ASX between 2001 and 2015. This paper also conducts tests to explore the mediating effects of financial reporting quality, firm performance and the risk of reporting problems, on the relation between audit committee ownership and cost of equity capital. Findings The analyses reveal that audit committee ownership reduces the firm’s cost of equity and, thereby, support the incentive alignment view. However, the association is driven primarily by audit committee equity ownership, with option holdings having an insignificant effect. This paper also finds that firm performance mediates the association between audit committee ownership and the cost of equity capital. Practical implications Findings of the existing corporate governance research relating to the cost of equity capital and audit committee ownership remain sparse in the context of “comply-or-explain” types of regulatory environment, like that of Australia. The findings indicate that principle-based discretionary governance arrangements, e.g. compensating audit committee members with company equity, may bring benefits to firms in terms of cheaper financing. Regulators, scholars and practitioners are invited to consider further the comprehensive implications of the structure and transparency of audit committee incentives on the effective functioning of security markets. Originality/value The effects of audit committee ownership on the cost of equity capital are an issue of direct economic consequence for equity investors. The main finding of this study, namely, that a firm with higher audit committee share ownership is likely to benefit from a lower cost of equity capital, therefore adds value to the limited extant literature.

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