Market Reaction to Adoption of IFRS in Europe

Christopher S. Armstrong, Mary E. Barth, Alan D. Jagolinzer, and Edward J. Riedl published Market Reaction to Adoption of IFRS in Europe (.pdf)

This study examines the European stock market reaction to sixteen events associated with the
adoption of International Financial Reporting Standards (IFRS) in Europe. European IFRS
adoption represented a major milestone towards financial reporting convergence yet spurred
controversy reaching the highest levels of government. We find a more positive reaction for
firms with lower quality pre-adoption information, which is more pronounced in banks, and with
higher pre-adoption information asymmetry, consistent with investors expecting net information
quality benefits from IFRS adoption. We also find that the reaction is less positive for firms
domiciled in code law countries, consistent with investors’ concerns over enforcement of IFRS
in those countries. Finally, we find a positive reaction to IFRS adoption events for firms with
high quality pre-adoption information, consistent with investors expecting net convergence
benefits from IFRS adoption. Overall, the findings suggest that investors in European firms
perceived net benefits associated with IFRS adoption.

With IFRS coming to the US in a few years it is interesting to see the reaction to the new accounting standards.

The SEC proposes that implementation of the use of IFRS by U.S. issuers would be staggered into three phases based on the size of the reporting company. IFRS filings for large accelerated filers would begin for those filers with fiscal years ending on or after December 15, 2014, while IFRS filings for accelerated filers would be begin for those filers with fiscal years ending on or after December 15, 2015, and for non-accelerated filers and smaller reporting companies for those filers with fiscal years ending on or after December 15, 2016

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