Does Mandatory IFRS Adoption in the EU Level the International Playing Field Between Foreign and Domestic Analysts? ACES Working Papers, October 2011

Byard, Donald and Li, Ying and Yu, Yong (2011) Does Mandatory IFRS Adoption in the EU Level the International Playing Field Between Foreign and Domestic Analysts? ACES Working Papers, October 2011. [Working Paper]

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Abstract

International Financial Reporting Standards (IFRS) have been promoted as a global set of financial reporting standards that will help integrate global capital markets. We examine whether the mandatory European-wide adoption of IFRS in 2005 improved the forecast accuracy for foreign analysts relative to that of domestic analysts. We find that, on average, foreign analysts experience no incremental improvement in forecast accuracy relative to domestic analysts. However, we find that those foreign analysts who are familiar with IFRS do experience an incremental improvement in forecast accuracy relative to domestic analysts. We also find that this incremental improvement in forecast accuracy relative to domestic analysts is concentrated among firms domiciled in countries with both strong enforcement regimes and domestic accounting standards that differ significantly from IFRS. Our results highlight that both familiarity with IFRS and the quality of countries' enforcement environments play key roles in determining the extent to which IFRS adoption can reduce information asymmetry between foreign and domestic analysts.

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