IFRS Convergence and Value Relevance of Accounting Information: Evidence from Indian Financial Reporting

Abstract

International studies have recorded evidences of improved accounting information attributed to the adoption of International Financial Reporting Standards (IFRS). The concurrent literature is however, scant in India. This study is one of the first of its kind to explore value relevance in the context of financial reporting for a large sample in India since IFRS convergence. The paper examines the value relevance of financial reporting of firms listed on the National Stock Exchange (NSE) in India by employing the Ohlson, (1995) Price Model. It aims to identify whether fundamental accounting variables like book value per share (BVPS) and earnings per share (EPS) are more value relevant after the IFRS converged Indian Accounting Standards (IndAS) became mandatory for listed firms. The hypotheses are tested using multivariate panel regressions on the annual data of 910 listed firms from 2013-14 to 2018-19 – resulting in 5460 observations – to include the pre and post mandatory convergence periods. The study documents a statistically significant association between stock prices of our sample firms and their key accounting variables (BVPS and EPS) along with an increase in the explanatory power of the model during the post mandatory convergence period.

Does the Ind AS moderate the relationship between capital structure and firm performance?

“…Of which, Latha and Rajashree (2022) find that the adoption of Ind AS with mandatory auditor rotation resulted in better audit quality for Indian firms. Costa and Gomes (2022) examined the impact of IFRS convergence on the value relevance of financial statements of Indian companies using the Ohlson model. The model finds that book value per share, earnings, and stock price are value-relevant during the Ind AS period, that is, 2018-19 (post-convergence period).…”