The Effect of IFRS on the Usefulness of Earnings Announcements


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Abstract

Based on prior researchers’ finding that the usefulness of earnings increases after IFRS adoption, I investigate the mechanisms through which IFRS affects market price responses to annual earnings announcements. Using a sample of 140 firms listed on Euronext over 2000 – 2010, I confirm that the market response increased after IFRS adoption. I find that the change was more pronounced in Euronext countries where local GAAP was further from IFRS. Using the Francis, Schipper and Vincent (2002) research design, I also find that the absolute amount of unexpected earnings and investors’ average response to unexpected earnings does not explain the increased usefulness of earnings announcements after IFRS adoption. I provide evidence that the increase in the magnitude of market reactions to earnings announcements is attributable to the increase in concurrently released information in press releases – specifically, the inclusion of detailed statement of cash flow information. This trend is more pronounced in countries where local GAAP was further from IFRS.
 
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Paulo Perego

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