Does Mandatory IFRS Adoption Affect Crash Risk?

http://eds.a.ebscohost.com.libproxy.smu.edu.sg/ehost/pdfviewer/pdfviewer?sid=affa0588-3161-4ec3-a5c7-28593bf6a47a%40sessionmgr4001&vid=0&hid=4103

Does Mandatory IFRS Adoption Affect Crash Risk?

DeFond, Mark L.1 Mingyi Hung1,2 Siqi Li3 Yinghua Li4

Accounting Review. Jan2015, Vol. 90 Issue 1, p265-299. 35p. 5 Charts.

Abstract:

We test whether mandatory IFRS adoption affects firm-level ”crash risk,” defined as the frequency of extreme negative stock returns. We separately analyze nonfinancial firms and financial firms because IFRS is likely to affect their crash risk differently. We find that IFRS adoption decreases crash risk among nonfinancial firms, especially among firms in poor information environments and in countries where IFRS adoption results in larger and more credible changes to local GAAP. In contrast, IFRS adoption has no effect on crash risk for financial firms, on average, but decreases crash risk among firms less affected by IFRS’s fair value provisions, and increases crash risk among banks in countries with weak banking regulations. Overall, our results are consistent with the increased transparency from IFRS adoption broadly reducing crash risk among nonfinancial firms, but more selectively among financial firms, and with financial regulations playing a complementary role in implementing IFRS among financial firms.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s