Download or read book The Effects of IFRS Adoption in the European Union on Banks Cost of Equity written by Vera Palea and published by . This book was released on 2019 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: The effects of disclosure level on the cost of equity are a matter of considerable interest and importance to the financial reporting community. Economic theory indeed claims that commitment to increased level of disclosure reduces the cost of capital component that arises from information asymmetries. Accordingly, this paper investigates the effects of IFRS adoption in Europe on the cost of equity for the bank industry. In doing so, it performs an event study, which isolates the effects of accounting changes on the cost of capital from institutional and enforcement mechanisms. This study shows that IFRS adoption has exerted, on average, a positive effect on the cost of capital for the bank industry at least in the very short run. Firms adopting IFRS seem to have experienced a lower cost of equity in the period immediately subsequent the release of financial reporting according to the new accounting standard set.
Download or read book IAS IFRS written by Vera Palea and published by FrancoAngeli. This book was released on 2006 with total page 132 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Effects of the IAS IFRS Adoption in the European Union on the Financial Industry written by Vera Palea and published by . This book was released on 2009 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: The effect of disclosure level on the cost of equity is a matter of considerable interest and importance to the financial reporting community. In this research, the effects of the IAS/IFRS adoption in Europe on the cost of equity capital relative to the bank industry have been examined. Previous research has shown that the adoption of the IAS/IFRS reduces information asymmetry between investors and firms. Economic theory claims that a commitment to increased level of disclosure reduces the cost of capital component that arises from information asymmetries. This study shows empirically that the increase in the level of disclosure provided by the adoption of the IAS/IFRS in the European Union by Regulation 1606/2002 has led effectively to a lower cost of capital. From a practical point of view, these findings provide evidence that the Regulator's purpose of fostering a cost-efficient functioning of the capital market for firms could be considered as accomplished. Furthermore, they point out that firms which implemented the IAS/IFRS have gained a comparative advantage on the equity market over firms still adopting accounting standards based on the IV and VII European Directives.
Download or read book The Effects of the IAS IFRS Adoption in the European Union on the Cost of Equity written by Vera Palea and published by . This book was released on 2006 with total page 147 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book IFRS and European Commerical Banks written by Athanasios Dimos and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: 2005 was a landmark year in the European Union's (EU) financial reporting history as all EU listed firms were required to switch from national accounting standards to IFRS. Using a sample of European commercial banks, this study explores two research questions within the framework of equity valuation theory: (i) whether the disclosed fair value estimates of loans and advances; held-to-maturity investments; deposits; and other debt, as well as the recognition of derivatives at fair value, are value relevant, (ii) whether the adoption of IFRS led to a reduction in European banks' cost of equity capital. The results show that the fair value of loans and advances and other debt are value relevant as is the recognition of derivatives at fair value. Further analysis revealed that the relevance of fair value of loans and derivatives is contingent on banks' financial health and earnings variability, respectively, as well as on the ability of countries to enforce IFRS. The findings also indicate that the cost of equity capital of European commercial banks decreased after the adoption of IFRS. However, banks domiciled in countries with continental accounting standards and weak enforcement rules experienced a greater reduction in their cost of equity capital.
Download or read book The introduction of IFRS Consequences for investment decisions written by Simon Falcke and published by GRIN Verlag. This book was released on 2020-07-09 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2019 in the subject Business economics - Investment and Finance, grade: 1,0, Otto Beisheim School of Management Vallendar, language: English, abstract: Starting in 2005, the portion of foreign shareholders in the Dax has risen from 45% to 58% in the last decade. In the same year, the regulation of the European Union from 2002 came into effect which required all listed firms in the European Union to report their consolidated accounts in accordance with the International Financial Reporting Standard (IFRS) from 2005 on instead of each countries’ generally accepted accounting standards (GAAP). This is just one example where the volume of investments increased concurrently with the adoption of IFRS. Therefore, the question arises if the mandatory adoption of IFRS in the EU in 2005 or in other cases significantly affected and continues to affect investment decisions among adopters or third parties. In order to better account for differences between different types of investors and investees, we differentiate between retail investors, institutional investors and corporate finance activities. Moreover, we focus on the consequence of IFRS adoption on equity investment decisions as most research appears to focus on the equity instead of the credit market. Additionally, Lourenco & Branco point out that most research which finds no significant effects of IFRS adoption on investment decisions appears to focus on voluntary adoption before 2005. Thus, this paper mainly focuses on mandatory IFRS adoption. In this context, research suggests that mandatory IFRS adopters experience significant capital markets benefits as well as enhanced foreign institutional ownership and enhanced M&A activity. Ultimately, we observe four overarching drivers behind the aforementioned observations that impact investment decisions across different types of investors and investees.
Download or read book Does Mandatory Adoption of International Financial Reporting Standards in the European Union Reduce the Cost of Equity Capital written by Siqi Li and published by . This book was released on 2011 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Cost of Equity Effects from Mandatory IFRS Adoption Legal and Financial Institutions and Auditor Quality Dimensions written by Raymond Leung and published by . This book was released on 2015 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines if cost of equity can be negatively affected by mandatory IFRS adoption. Also, this paper explores how cost of equity effects differ depending on different national level of governance mechanisms because financial reporting incentives are influenced by both accounting regulation and institutional factors. While I document that mandatory IFRS adoption negatively influences cost of equity beyond the transition period, however, such observed results may also be attributed to the concurrent evolving effects from legal quality and enforcement, stock market development and auditor quality. Given that most cross-country national governance studies only apply a set of dated and static indices; I argue that using, time-varying and cross-sectional institutional indices can provide better measurement of both individual and interactive effects on firm-level cost of equity. While average legal mechanisms are an important factor, the results show that increase (decrease) in regulatory quality (legal enforcement) interacts with post-IFRS period significantly (insignificantly) and associate with lower (higher) ex-ante cost of equity. Moreover, I find that countries with different legal origins systematically associate with different dimensions of stock market development to reduce the cost of equity. Also, auditor quality is effective to reduce information asymmetry, but it highly depends on national legal quality and enforcement. Finally, I document that when cost of equity is lowered, it benefits firms with higher value.
Download or read book The Effect of IFRS on Investment Decisions written by Leonidas C. Doukakis and published by . This book was released on 2017 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates the effect of a change in financial reporting regulation, the adoption of International Financial Reporting Standards (IFRS), on investment decisions in Europe. It further investigates whether capital investment decisions were influenced by the adverse macroeconomic conditions that took place during the crisis period in the Eurozone in years 2008-2010. Moreover, we control for the fact that the impact of the IFRS adoption may differ depending on a) the timing of the adoption i.e. voluntary versus mandatory adopters and b) the legal enforcement and corruption levels. We provide evidence that financial reporting practices of mandatory versus voluntary adopters cause significant differences in (a) the cost of equity capital, (b) the level of capital investments and (c) the return on invested capital. Our evidence suggest that mandatory adopters improved the level of capital investments and the return on invested capital in the post IFRS period and that the cost of equity capital was reduced. These evidence are more pronounced under the strong legal enforcement environment. For the group of voluntary adopters, we verify also a significant reduction in the cost of equity capital in the post IFRS adoption period. Regarding their investment practices, we document higher level of capital investment relative to mandatory adopters in both the pre and post IFRS period and even after controlling for the legal enforcement environment. We provide evidence that during the crisis period the cost of equity capital was increased for both groups. Nevertheless, our results suggest that both groups keep their investment policy unchanged by not reducing the level of capital investments.
Download or read book Economic Consequences of Fair Value Reclassifications of Financial Assets According to IAS 39 written by Meryem Önüt and published by GRIN Verlag. This book was released on 2017-10-16 with total page 112 pages. Available in PDF, EPUB and Kindle. Book excerpt: Master's Thesis from the year 2015 in the subject Business economics - Accounting and Taxes, grade: 2,0, University of Hohenheim, language: English, abstract: The purpose of this thesis is to provide direct empirical evidence on the use of the Amendment according to IAS 39 regarding the reclassification of financial instruments. It therefore reviews what happened when the accounting policies were switched from fair value accounting to historical accounting during the financial crisis in 2008. Using a sample of manually collected data from Western European banks, the thesis empiri-cally examines which banks used this reclassification option to deal with problematic financial assets and how these reclassification activities are correlated with other firm characteristics. Furthermore, the thesis shows the influence of the amount of assets in each fair value level on the fair value hierarchy and the impact of the banks’ regulatory capital during the height of the financial crises on the use of the relaxation option. The final aim is to analyze the economic consequences of this option and to determine how beneficial it is for the global financial system, considering that banks will again make use of this sort of permission in other, future crises. After the development of the International Financial Reporting Standards (IFRS) by the International Accounting Standard Board (IASB) in 2001, the European Union (EU) decided to unify the jurisdictions for all listed corporations and therefore decreed a mandatory adoption of IFRS in the EU. The EU reasoned that common ac-counting standards improve capital market efficiency and reduce information processing and auditing costs. However, the decisive reason for the adoption of IFRS was that today’s global economy requires global standards to ensure transparency, accountability and comparability of financial accounts. IFRS was preferred because of its focus on a fair value-based method of accounting compared to historical cost accounting, and the EU claimed that adopting IFRS would bring financial stability while serving the interests of the public.
Download or read book Signalling Under Uncertainty written by Osman Ghani and published by . This book was released on 2019 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the liquidity, Tobin's Q, and cost of equity effects from voluntary and mandatory IFRS adoption. In contrast to prior work, we focus on the firm level heterogeneity in the economic consequences, recognising that the level of uncertainty avoidance (UAI) in a country will influence the economic consequences derived from implementing the new standards. Country level uncertainty avoidance is predicted to lead to lower liquidity and Tobin's Q, and a higher cost of equity for mandatory adopters in higher UAI countries, while higher UAI is expected to benefit voluntary adopters in terms of higher liquidity and Tobin's Q, and a lower cost of equity. To test these predictions, we partition the firms into non-adopters, voluntary adopters, and mandatory adopters and also classify firms according to the change in their financial reporting quality. We analyse whether capital markets effects are different across the various groups based on the level of uncertainty avoidance in the host country. We find that prior to the mandatory adoption of IFRS by the EU member states, voluntary adopters in higher UAI countries benefited from increased liquidity and Tobin's Q, compared to identical firms in lower UAI countries, mandatory adopters and non-adopters. However, we find that this result is not persistent post the EU mandate, and that UAI influences both mandatory and voluntary adopters in a similar manner post 2005. The results from the cost of equity analysis suggest that market participants treat mandatory and voluntary adopters in an almost identical manner and that a higher UAI leads to both groups of firms exhibiting a reduction in their cost of equity. Our findings imply that uncertainty avoidance is able to explain part of the heterogeneity exhibited in the capital market outcomes between firms and across countries that have adopted IFRS.
Download or read book The Impact of Voluntary Adoption of IFRS on the Earning Quality and the Cost of Capital written by Dalia Ezzat and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The objective of this research is to investigate the direct relationship between the voluntary adoption of IFRS and cost of capital. Also, it investigates the indirect effect of earning quality on the voluntary adoption of IFRS and cost of capital. These relationships have been a very important issue and topic for researcher since IFRS became mandatory in EU at a beginning of 2005. Therefore, the aim of this study is to explore the nature of relationship between voluntary adoption of IFRS on the cost of capital and earning quality in Egypt and European firms. The sample is collected from the financial statements of 20 Egyptian and European firms as a secondary source of data. The 20 firms are classified into 10 adopting EAS in Egypt and the other 10 adopting IFRS in Europe from 2006 to 2015. The sample was from a range of industrial sectors. The results show that there is a negative relationship between voluntary adoption of IFRS and cost of capital. Costs of capital reduced in firms adopt EAS more than IFRS. Also, earning quality is not considered to be a mediator because it does not affect the relation of voluntary adoption of IFRS and cost of capital. However, there is a significant positive relationship between voluntary adoptions of IFRS on earning smoothness and accrual quality. Also, there is a negative relationship between earning quality and cost of capital.
Download or read book The Effects of Mandatory IFRS Adoption in the EU written by Brian Singleton-Green and published by . This book was released on 2015 with total page 166 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reviews the empirical research evidence on the effects of mandatory IFRS adoption in the EU. The research is classified and assessed in relation to the objectives of EU Regulation 1606/2002, which made IFRS mandatory in the EU. The review finds that there is evidence of benefits following IFRS adoption in relation to financial reporting transparency and comparability, the cost of capital, market liquidity, corporate investment efficiency and cross-border capital flows. But the evidence on some of these matters is disputed and it is unclear how far the benefits identified are attributable to the adoption of IFRS or to other concurrent institutional changes, particularly in enforcement. What is clear is that the benefits found are uneven, varying with the institutions and incentives that apply for different companies in different countries. On the possible role of IFRS in the financial crisis in the EU, more research is needed before conclusions can be drawn. The paper also considers the problems of interpreting the research and drawing conclusions from it for policy making purposes.
Download or read book Mandating IFRS written by Dr. Edward Lee and published by . This book was released on 2008 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Earnings Quality written by Jennifer Francis and published by Now Publishers Inc. This book was released on 2008 with total page 97 pages. Available in PDF, EPUB and Kindle. Book excerpt: This review lays out a research perspective on earnings quality. We provide an overview of alternative definitions and measures of earnings quality and a discussion of research design choices encountered in earnings quality research. Throughout, we focus on a capital markets setting, as opposed, for example, to a contracting or stewardship setting. Our reason for this choice stems from the view that the capital market uses of accounting information are fundamental, in the sense of providing a basis for other uses, such as stewardship. Because resource allocations are ex ante decisions while contracting/stewardship assessments are ex post evaluations of outcomes, evidence on whether, how and to what degree earnings quality influences capital market resource allocation decisions is fundamental to understanding why and how accounting matters to investors and others, including those charged with stewardship responsibilities. Demonstrating a link between earnings quality and, for example, the costs of equity and debt capital implies a basic economic role in capital allocation decisions for accounting information; this role has only recently been documented in the accounting literature. We focus on how the precision of financial information in capturing one or more underlying valuation-relevant constructs affects the assessment and use of that information by capital market participants. We emphasize that the choice of constructs to be measured is typically contextual. Our main focus is on the precision of earnings, which we view as a summary indicator of the overall quality of financial reporting. Our intent in discussing research that evaluates the capital market effects of earnings quality is both to stimulate further research in this area and to encourage research on related topics, including, for example, the role of earnings quality in contracting and stewardship.
Download or read book Meta analysis of the Impact of Adoption of Ifrs on Financial Reporting Comparability Market Liquidity and Cost of Capital written by Solomon Opare and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Impact of IFRS Adoption on the Loan Loss Provisioning of Banks in the European Union written by Zoltán Novotny-Farkas and published by . This book was released on 2011 with total page 177 pages. Available in PDF, EPUB and Kindle. Book excerpt:
