Assessing the Value Relevance of Accounting Data After the Introduction of IFRS in Europe

Abstract

European listed companies are required to prepare their consolidated financial statements in accordance to IFRS since 1 st January 2005. IFRS are supposed lead to better accounting quality and to a closer association between market-based and accounting-based performance, or value relevance. We examine whether value relevance has improved after the compulsory adoption of IFRS using a sample of 3,721 companies listed on five European stock exchanges: Frankfurt, Madrid, Paris, London and Milan. We find little evidence of an improvement in value relevance. However, earnings are found to influence share price to a greater extent than prior to IFRS adoption, while the influence of the book value of equity is found to have decreased.

A comparison of the value relevance of interim and annual financial statements

“…We argue that a devalued share price associated with decreased earnings for the period could have resulted in the drop in the explanatory power of both models. Following Badenhorst, Brummer and de Wet (2015), Devalle et al (2010) and Gu (2007, we The untabulated results of the robustness tests are qualitatively similar to those obtained in the main model and support the results presented in Figure 1. Table 4 contains the results of the OLS pooled regression, testing whether accounting information published in annual and interim financial statements is value relevant (step 1 to test hypothesis 3).…”

“…Following Barth, Landsman and Lang (2008), Devalle et al (2010), Hellstrom (2006) and Venter et al (2014), we used a levels approach and winsorised all the variables at a 95% level to mitigate the effects of outliers in the sample (Barth et al 2008). We recognise that size could have an effect on the inferences drawn from level specifications and scaled all our variables with number of shares 3 months after reporting date (see Barth & Clinch 2009).…”

“…International Financial Reporting Standards (IFRS) adoption countries versus countries where locally developed generally accepted accounting practices were applied, common versus code law countries, etc. ), provides evidence that annual accounting information is value relevant to market participants (see Barth et al 2001;Cahan et al 2000;Clarkson et al 2011;Collins et al 1997;Devalle, Onali & Magarini 2010;Dontoh et al 2004;Filip & Raffournier 2010;Francis & Schipper 1999;Gjerde et al 2011;Goodwin & Ahmed 2006;Hellstrom 2006;Holthausen & Watts 2001;Kothari 2001;Prather-Kinsey 2006;Thinggaard & Damkier 2008). Not much prior research has been conducted on the value relevance of interim accounting information.…”

“…Comparing R 2 s, their results show that the value relevance of both earnings and the book value of equity have increased. Lastly, it has been argued that the value relevance of the accounting data in Europe after the introduction of the IFRSs strengthened as a consequence of adopting the IFRSs (Devalle et al 2010). …”

European Accounting Harmonization: Consequences of IFRS Adoption on Trade in Goods and Foreign Direct Investments

“…These papers show that benefits are expected from enhanced comparability and reduced information processing costs after IFRS adoption. Nonetheless, Devalle et al (2010) show that cross-border comparability of financial statements may not have been achieved in Europe post-IFRS as significant differences between European accounting standards still remain and the impact of IFRS adoption differs from one country to the next. Therefore, the first hypothesis to be tested is whether IFRS adoption has benefited European countries in terms of trade in goods and FDI as IFRS adoption might have increased comparability among adopters.…”