The literature suggests that real earnings management (REM) activities can increase adverse selection-risk in capital markets. Due to their opacity and the difficulties in understanding their implications, REM strategies may increase the level of information asymmetry among investors. This paper examines the association between earnings management through real activities manipulation and information asymmetry in the equity market. To estimate the level of adverse selection risk we use a comprehensive index of information asymmetry measures proposed by the market microstructure literature. For a sample of Spanish listed firms, we find that firms' strategies of increasing earnings through REM are associated with higher information asymmetry in those firms that meet last year's earnings. Our findings are consistent with the hypothesis that earnings management through real activities manipulation garbles the market, enhances private information production, and exacerbates information asymmetry in the stock market.

The purpose of International Financial Reporting Standards (IFRS), adopted mandatorily by European listed firms in 2005, is to increase the transparency and the comparability of accounting information, which should have led to improvements in these firms' information environment. This study uses market microstructure proxies for information asymmetry to examine the effects of IFRS adoption on the level of information asymmetry in the Spanish stock market. Therefore, we consider a setting with substantial differences between local standards-Spanish Accounting Standards (SAS)-and IFRS and where the level of enforcement is low. By controlling for conventional determinants of information asymmetry and firms' characteristics that influence their information environment, we find a reduction of information asymmetry after IFRS adoption. Our findings suggest that the mandatory switch from local accounting standards to IFRS conveys benefits to the market, even when the enforcement level is not strong.

We examine whether the switch to IFRS (International Financial Reporting Standards) has affected the value relevance and persistence of net income. In addition, since IFRS adoption has involved changes in the location of nonrecurring items in the income statement, we also examine whether these changes have influenced the value relevance, persistence, and predictive value of the main income measures. Using a sample of Spanish listed firms, we find an increase in the value relevance of net income and nonsignificant changes in its persistence after 2005. We also find that nonrecurring items were value relevant in the pre-adoption period and that the operating income is more value relevant after IFRS adoption. This suggests that the significant increase in the value relevance of operating income could be explained by the inclusion in this income measure of former extraordinary and special items. We also observe that the former extraordinary section under SAS (Spanish Accounting Standards) was persistent, whereas the income measure of net profit/loss from discontinued operations under IFRS is neither value relevant nor persistent. We do not find significant changes in the attributes of financial income, but we do observe an increase in the value relevance of other consolidated items and corporation tax after IFRS adoption.Efectos de las NIIF en el resultado y sus componentes: relevancia valorativa, persistencia y capacidad predictiva RESUMEN En el presente trabajo examinamos si el cambio a las NIIF (Normas Internacionales de Información Financiera) ha afectado a la relevancia valorativa y la persistencia del resultado del ejercicio. Además, como la adopción de las NIIF ha conllevado cambios en la estructura de la cuenta pérdidas y ganancias en relación con los resultados no recurrentes, analizamos también la influencia de este cambio sobre la relevancia valorativa, persistencia y capacidad predictiva de los distintos tipos de resultado. Utilizando una muestra de empresas españolas, encontramos un incremento en la relevancia valorativa del resultado del ejercicio y no evidencia significativa de cambios en ARTICLE HISTORY Downloaded by [University of Sussex Library] at 17:46 27 June 2016 su persistencia. También hallamos que los resultados no recurrentes presentaban relevancia valorativa antes de la adopción de las NIIF y una mayor relevancia valorativa del resultado de explotación tras las NIIF, lo que sugiere que el incremento en la relevancia valorativa del resultado de explotación podría ser explicado por la inclusión en el mismo, tras la adopción de las NIIF, de parte de estos resultados no recurrentes. También observamos que la antigua sección de resultados extraordinarios era persistente, mientras el resultado de operaciones discontinuas neto de impuestos no muestra relevancia valorativa ni persistencia. No encontramos cambios significativos en los atributos del resultado financiero, pero sí un incremento en la relevancia valorativa del impuesto de beneficios y otras partidas consolidadas tras la adopción de las ...