Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Working Knowledge
Business Research for Business Leaders
  • Browse All Articles
  • Popular Articles
  • Cold Call Podcast
  • Managing the Future of Work Podcast
  • About Us
  • Book
  • Leadership
  • Marketing
  • Finance
  • Management
  • Entrepreneurship
  • All Topics...
  • Topics
    • COVID-19
    • Entrepreneurship
    • Finance
    • Gender
    • Globalization
    • Leadership
    • Management
    • Negotiation
    • Social Enterprise
    • Strategy
  • Sections
    • Book
    • Podcasts
    • Managing the Future of Work Podcast
    • HBS Case
    • In Practice
    • Lessons from the Classroom
    • Op-Ed
    • Research & Ideas
    • Research Event
    • Sharpening Your Skills
    • What Do You Think?
    • Working Paper Summaries
  • Browse All
    Mandatory IFRS Adoption and Financial Statement Comparability
    19 May 2011Working Paper Summaries

    Mandatory IFRS Adoption and Financial Statement Comparability

    by Francois Brochet, Alan Jagolinzer and Edward J. Riedl
    In the past decade, many countries have adopted International Financial Reporting Standards (IFRS) developed by the International Accounting Standards Board, which has impelled economists to examine the benefits of the standards. This paper discusses how IFRS adoption affects financial reporting comparability—that is, the properties of financial statements that allow users to identify similarities or differences between the economics of different reporting entities over any given period of time. Research was conducted by Francois Brochet and Edward J. Riedl of Harvard Business School, and Alan Jagolinzer of the University of Colorado at Boulder. Key concepts include:
    • Mandatory IFRS adoption results in a reduction of abnormal returns to insider purchases.
    • IFRS adoption also results in a reduction of abnormal returns to analyst recommendation upgrades.
    • These improvements can also accrue in settings in which information quality is already high, and incumbent domestic standards are already similar to IFRS.
    • All results are consistent with IFRS adoption improving financial statement comparability.
    LinkedIn
    Email

    Author Abstract

    This study examines the effect of mandatory International Financial Reporting Standards (IFRS) adoption on financial statement comparability. To isolate the effects of changes in comparability, we examine changes to information asymmetry for firms domiciled in the UK. UK domestic standards that preceded IFRS adoption are considered very similar to IFRS (Bae et al. 2008); accordingly, we use the UK as a setting to isolate changes to the information environment relating to IFRS adoption that more likely to reflect changes in comparability versus information quality. If IFRS adoption improves financial statement comparability across firms, we predict this should reduce private information benefits. Empirical results confirm these predictions. Specifically, abnormal returns to two proxies for private information (insider purchases and analyst recommendation upgrades) are reduced following IFRS adoption. Similar results are obtained for subsamples that further isolate the reduction in private information as attributable to increases in comparability: firms having low amounts of reconciling items between UK GAAP and IFRS, and firms having ex ante high quality information environments. Together, the results are consistent with mandatory IFRS adoption leading to enhanced comparability.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: April 2011
    • HBS Working Paper Number: 11-109
    • Faculty Unit(s): Accounting and Management
      Trending
        • 13 May 2022
        • Research & Ideas

        Company Reviews on Glassdoor: Petty Complaints or Signs of Potential Misconduct?

        • 13 Aug 2021
        • Research & Ideas

        Managers, Here’s How to Bond with New Hires Remotely

        • 12 May 2022
        • Book

        Why Digital Is a State of Mind, Not Just a Skill Set

        • 09 Dec 2019
        • Research & Ideas

        Identify Great Customers from Their First Purchase

        • 24 Mar 2022
        • Research & Ideas

        Rituals at Work: Teams That Play Together Stay Together

    Find Related Articles
    • Accounting
    • Government and Politics
    • Europe

    Sign up for our weekly newsletter

    Interested in improving your business? Learn about fresh research and ideas from Harvard Business School faculty.
    ǁ
    Campus Map
    Harvard Business School Working Knowledge
    Baker Library | Bloomberg Center
    Soldiers Field
    Boston, MA 02163
    Email: Editor-in-Chief
    →Map & Directions
    →More Contact Information
    • Make a Gift
    • Site Map
    • Jobs
    • Harvard University
    • Trademarks
    • Policies
    • Digital Accessibility
    Copyright © President & Fellows of Harvard College