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Xi Li and Holly I. Yang
(2016) Mandatory Financial Reporting and Voluntary Disclosure: The Effect of Mandatory IFRS Adoption on Management Forecasts. The Accounting Review: May 2016, Vol. 91, No. 3, pp. 933-953.
Mandatory Financial Reporting and Voluntary Disclosure: The Effect of Mandatory IFRS Adoption on Management Forecasts
Xi Li
Temple University
Holly I. Yang
Singapore Management University
We are grateful for helpful comments from Karthik Balakrishnan, Mary Barth, Larry Brown, Hans Christensen, Mark L. DeFond (senior editor), Jimmy Downes, Paul Fischer, Luzi Hail, Helena Isidro, Wayne Landsman, Henock Louis, Morton Pincus (editor), Lakshmanan Shivakumar, Phillip Stocken, Marco Trombetta, Shiheng Wang, Steve Zeff, two anonymous reviewers, and workshop participants from the Business Research Unit of the Instituto Universitário de Lisboa ISCTE, City University of Hong Kong, Korea Advanced Institute of Science and Technology, Korea University, Rutgers, The State University of New Jersey, Temple University, University of Connecticut, the 2013 AAA Annual Meeting, the 2014 FARS Meeting, the 2014 MIT Asia Conference in Accounting, and the 2015 EAA Meeting. We are also thankful for research assistance from Han-Up Park. Holly Yang gratefully acknowledges funding from the Lee Kong Chian Fellowship at Singapore Management University and the Global Initiatives Fund and the Dean's Research Fund at the Wharton School of the University of Pennsylvania.
This paper was previously circulated under the title “Mandatory Financial Reporting and Voluntary Disclosure: Evidence from Mandatory IFRS Adoption.”
Supplemental material can be accessed by clicking the link in Appendix A.
Editor's note: Accepted by Morton Pincus.
ABSTRACT:
This study examines the effect of the mandatory adoption of International Financial Reporting Standards (IFRS) on voluntary disclosure. Using a difference-in-differences analysis, we document a significant increase in the likelihood and frequency of management earnings forecasts following mandatory IFRS adoption, consistent with the notion that IFRS adoption alters firms' disclosure incentives in response to increased capital-market demand. We find the increase to be larger among firms domiciled in code-law countries, suggesting a catching-up effect among firms facing low disclosure incentives pre-adoption. We then propose and test three channels through which IFRS adoption could alter firms' disclosure incentives: improved earnings quality, increased shareholder demand, and increased analyst demand. We find evidence consistent with all three channels.
Received: February 2014; Accepted: July 2015; Published: September 2015
Cited by
Andrew Bird and Stephen A. Karolyi. (2016) Do Institutional Investors Demand Public Disclosure?. Review of Financial Studies29:12, 3245-3277. Online publication date: 6-Aug-2016. CrossRef
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