The Precondition of Benefits from IFRS Adoption: Financial Statement Comparability

Abstract

This study examines whether the adoption of International Financial Reporting Standards (IFRS) has increased financial statement comparability among firms and reduced undervaluation of Korean firms in the capital market by enhancing financial statement comparability. The so-called Korea Discount, which indicates an inefficient allocation of capital, has been attributed to lack of transparency and comparability of accounting information. Therefore, an efficient distribution of capital in the market was intended when IFRS was first adopted in Korea, but such progress is based on a premise of enhancement in Korean firms' accounting information comparability. This study conducts empirical analysis by using a comparability measure by De Franco et al. (2011). More specifically, it analyzes differences among comparability of domestic firms following IFRS adoption, with firms in the EU, which adopted IFRS in 2005, and with firms in the U.S., China and Japan that do not follow IFRS. The analysis of changes in domestic firms' comparability finds that their comparability improved following IFRS adoption. Meanwhile, the examination of cross-national differences in comparability demonstrates that, although there has been no significant change in comparability with firms in the U.S. and the EU across Korean industry since IFRS adoption, comparability with China has decreased while that with Japan improved.

Does performance persistence below aspirations affect firms' accounting information disclosure strategies? An empirical study based on reliability and comparability

“…With the gradual improvement of the capital market, market participants have higher expectations/requirements of information quality (Fan & Zhang, 2012). From the viewpoint of information seekers, market participants, such as investors, creditors, and suppliers, often derive information to judge the financial position and operating results of an enterprise directly or indirectly from the accounting information disclosed by it (Jung et al, 2020). These market participants adjust their decisions based on the accounting information disclosed by a firm, thereby enhancing or reducing the firm's access to external resources and improving or worsening executives' career and wealth security (Gentry & Shen, 2013).…”