Economic Consequences of IFRS Adoption: The Role of Changes in Disclosure Quality

B. Li (First Author), Gianfranco Siciliano (Participant Author), M. Venkatachalam (Participant Author)

Research output: Contribution to journalJournal

10 Citations (Web of Science)

Abstract

This study adopts a two‐step approach to highlight the disclosure quality channel that drives economic consequences of IFRS adoption. This approach helps address the identification challenge noted by Leuz and Wysocki (2006) and offer direct evidence on the role of disclosure quality. In the first step, we document the impact of the IFRS mandate on changes in disclosure quality proxied by the granularity of line‐item disclosure in financial statements. We find that IFRS‐adopting firms provide more disaggregated information upon IFRS adoption, such as more granular disclosure of intangible assets and long‐term investments on the balance sheet and greater disaggregation of depreciation, amortization, and non‐operating income items on the income statement. In the second step, we link the observed disclosure changes to the benefits and costs of IFRS adoption. We show that greater disaggregated information due to IFRS adoption enhances market liquidity and decreases information asymmetry, but does not affect audit fees differentially. Our evidence has implications for standard setters as they evaluate cost‐benefit tradeoffs when considering disclosure changes in the future.
Original languageEnglish
Pages (from-to)129-179
JournalContemporary Accounting Research
Volume38
Issue number1
DOIs
Publication statusPublished - 2021

Corresponding author email

vmohan@duke.edu

Project sponsor

Chartered Professional Accountants of Canada

Keywords

  • IFRS adoption
  • audit fees
  • disclosure quality
  • market liquidity
  • nonmissing line items

Indexed by

  • ABDC-A*
  • Scopus
  • SSCI

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