Do IFRS‐Based Earnings Announcements Have More Information Content than Canadian GAAP‐Based Earnings Announcements?

Abstract

Using an event-study methodology, this study investigates whether the information content of earnings announcements changed for firms traded on the Toronto Stock Exchange (TSX) and the Canadian Venture Exchange (TSXV) following mandatory adoption of International Financial Reporting Standards (IFRS) in Canada. A priori, it may be argued that the information content of earnings would increase for both TSX and TSXV firms if IFRS earnings provided more value-relevant information than Canadian GAAP earnings. Increased value relevance of information provided by IFRS earnings would likely reflect increased measurement of changes in net asset values based on expectations as opposed to realizations. Because values based on expectations are subject to greater divergence of opinion than values based on realizations, greater value relevance is likely to be accompanied by higher abnormal return volatility and abnormal trading volume during announcement periods. Consistent with this argument, we find that abnormal volatility and abnormal volume during earnings announcement periods were higher in post-IFRS announcement periods than in pre-IFRS announcement periods for firms traded on the TSX. We discriminate across the two exchanges in terms of information quality based on the mix of institutional and retail investors, analyst following, concentration in the oil, gas and mining sectors, and size of firm. We test for a residual difference in information content based on the more speculative nature of the TSXV exchange and find some evidence that divergence of opinion was higher for TSXV firms than TSX firms in the pre-IFRS period but this residual difference does not carry through to the post-IFRS period.

Value Relevance of Environmental Provisions Pre‐ and Post‐IFRS

“…When the extractive industry firms are analyzed in a subsample, there is a significant increase in the level of accruals-based earnings management. Using an event study methodology to examine the information content of earnings pre-and post-IFRS adoption in Canada, Khan, Anderson, Warsame, and Wright (2015) find a greater divergence of opinions resulting from earnings announcements post-IFRS adoption, which indicates a higher level of value relevance post-IFRS. While the majority of the above studies indicate we should expect an increase in the value relevance of earnings, the results pertaining to the impact on book value are less clear.…”

IAS/IFRS in Jordan: Adoption, Implementation and Determinants

“…IFRS/IAS) instead of local standards on the quality of accounting information and any other potential benefits for such adoption. These include, for example, Callao, Jarne and Laí nez [28] in Spain; Liu et al [29] in China; Terzi, Oktem and Sen [30] and Aksu and Espahbodi [31] in Turkey; Săcărin, Bunea and Gîrbină [32] in Romania; Grabinski, Kedzior and Krasodomska [33] in Poland; Khan et al [34] and DiPonio [35] in Canada. The current study focuses on two main issues including firstly, the adoption level and implementation of the accounting standards in terms of difficulties and challenges and secondly, the main determinants of adoption level.…”

Does mandatory IFRS adoption affect large and small public firms' accounting quality differently? Evidence from Canada

“…The second improvement over other studies is the examination of value relevance related to both book value and earnings that are two summary metrics of the balance sheet and income statement, respectively. Prior Canadian studies have only examined earnings value relevance (e.g., Cormier & Magnan, 2016;Jin, 2017;Khan, Anderson, Warsame, & Wright, 2015;Liu & Sun, 2015).…”