The financial effects of IFRS adoption: A cross‐country analysis

What is it about?

Many stock markets worldwide have demanded their listed firms to voluntarily adopt the International Financial Reporting Standards (IFRS) without considering the financial benefits of IFRS adoption. Since 2005, European countries have significantly strengthened their financial situation by mandating IFRS adoption, which significantly enhanced the stock market integration between the European nations. Yet, the decision of early and voluntary IFRS adoption by companies traded on many regulated markets has negatively influenced the financial situation of those stock markets in the long term.

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Photo by Yiorgos Ntrahas on Unsplash

Photo by Yiorgos Ntrahas on Unsplash

Why is it important?

Many countries worldwide have widely adopted IFRS standards since they enhance transparency, comparability, and quality of financial information, enabling investors and other stakeholders to make informed financial decisions. Similarly, stock markets should also examine the financial benefits of demanding listed firms adopt IFRS voluntary or mandatory to ensure the best financial experience possible. Our results highlight the importance of mandatory IFRS adoption to the European countries. Our findings show that the early voluntary IFRS adoption has negatively affected the financial indicators of stock markets, namely stock market trading volumes, stock market capitalization, market turnover, and market return.

Perspectives