The effect of IFRS adoption on the value relevance of accounting information: evidence from South Korea

Past decade has witnessed several changes in the process of conduct of business activities across the world especially due to the wave of globalization. It has also made drastic changes in the process of financial reporting, in particular the continuing adoption of IFRS (International Financial Reporting Standards) worldwide. IFRS are high quality, understandable, enforceable and globally acceptable accounting standards issued by IASB (International Accounting Standard Board). Thus these are a set of international accounting standards stating how a particular type of transaction and other events should be reported in the financial statements. Thus IFRS are designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. IFRS is becoming the global language of business with over 40% of the world adopting this as their standard for reporting. India also decided to converge to IFRS from 1st April 2016 in a phased manner, which in turn improves the financial statement comparability and transparency that helps to attract greater cross border investments. This paper focuses on the convergence of IFRS with Indian Accounting Standards, its utility, issues and challenges faced by the stakeholders. It also throws light to the ways through which problems can be addressed.

The quality of financial report and the extent to which investors rely on them to forecast future earnings is dependent on the accounting standards employed. The impact of IFRS adoption on earnings predictability of listed banks in Nigeria was examined in this study considering a sample of 11 listed banks in Nigeria. Categorically, data were obtained from the financial statement 2013 to 2014 (post-adoption period) and 2010 to 2011 (pre-adoption period). The data obtained were analyzed using regression on the Statistical Package for Social Sciences (SPSS). The study found a decrease in the ability of current earnings to predict future earnings after the adoption period. Thus, IFRS adoption has a negative impact on earnings predictability. The study further suggested that regulatory bodies of the banking sector should enforce strict adherence to IFRS procedures and principles, as well as put in place measures that will improve investors’ protection.

The purpose of this paper is to investigate whether a change in stock price synchronicity after IFRS adoption differs by industry characteristics. IFRS adoption was expected to improve earnings quality and comparability. Industry concentration and homogeneity are utilized as industry characteristics, which are known as determinants to earnings quality and comparability to examine IFRS adoption effect on the synchronicity.
Using Korean firms listed from 2006 to 2015, the author found that stock price synchronicity decreases after IFRS adoption. The reduction in synchronicity is larger for firms in a concentrated industry. However, the researcher didn’t find that incremental effect of homogeneity on synchronicity changes around IFRS adoption. These results remain unchanged after several robustness tests. The results imply that earnings quality after IFRS adoption improves, while comparability effect is not evident in the Korean market.
The paper has implications that co-movement of stock price decreases after IFRS adoption in that delivering firm-specific information to investors; in addition, the magnitude of impacts of IFRS adoption differs by the industry characteristics. The author extends prior studies about IFRS adoption effect on the capital market by providing that the effects need to be examined after considering the industry characteristics.