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Economic consequences of IFRS convergence: evidence from phased manner implementation in India

Economic consequences of IFRS convergence: evidence from phased manner implementation in India This study is to examine the economic consequences of International Financial Reporting Standards (IFRS) converged standards by exploring its phased manner implementation in India.Design/methodology/approachThe study measures the economic outcomes in the form of capital market reactions such as cost of equity capital, cost of debt capital, information asymmetry and market liquidity. Difference-in-difference (DiD) methodology has been used to analyze the data for this study.FindingsBased on a sample of 2,685 Bombay Stock Exchange (BSE) listed firms, results show that the Indian capital market reacts negatively to the adoption of IFRS-converged standards. In particular, results show that the cost of equity capital, cost of debt capital and information asymmetry have been increased and market liquidity has been decreased for test firms relative to benchmark firms immediately after IFRS convergence and this negative effect is more pronounced among small firms than large firms. Subsequent tests suggest that test firms have better capital market reactions in the later year of implementation relative to benchmark firms that are implementing IFRS for the first time. It indicates the learning curve effect of IFRS on the economic outcomes as negative impact ameliorates over time.Originality/valueThe study is among earlier attempts to investigate the impact of IFRS on capital market reactions by exploring the phased manner implementation framework. The study is also among the pioneering attempts to examine the learning curve impact of IFRS on capital market reactions. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Asia Business Studies Emerald Publishing

Economic consequences of IFRS convergence: evidence from phased manner implementation in India

Journal of Asia Business Studies , Volume 17 (1): 20 – Jan 17, 2023

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References (59)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1558-7894
eISSN
1558-7894
DOI
10.1108/jabs-10-2021-0414
Publisher site
See Article on Publisher Site

Abstract

This study is to examine the economic consequences of International Financial Reporting Standards (IFRS) converged standards by exploring its phased manner implementation in India.Design/methodology/approachThe study measures the economic outcomes in the form of capital market reactions such as cost of equity capital, cost of debt capital, information asymmetry and market liquidity. Difference-in-difference (DiD) methodology has been used to analyze the data for this study.FindingsBased on a sample of 2,685 Bombay Stock Exchange (BSE) listed firms, results show that the Indian capital market reacts negatively to the adoption of IFRS-converged standards. In particular, results show that the cost of equity capital, cost of debt capital and information asymmetry have been increased and market liquidity has been decreased for test firms relative to benchmark firms immediately after IFRS convergence and this negative effect is more pronounced among small firms than large firms. Subsequent tests suggest that test firms have better capital market reactions in the later year of implementation relative to benchmark firms that are implementing IFRS for the first time. It indicates the learning curve effect of IFRS on the economic outcomes as negative impact ameliorates over time.Originality/valueThe study is among earlier attempts to investigate the impact of IFRS on capital market reactions by exploring the phased manner implementation framework. The study is also among the pioneering attempts to examine the learning curve impact of IFRS on capital market reactions.

Journal

Journal of Asia Business StudiesEmerald Publishing

Published: Jan 17, 2023

Keywords: IFRS; Convergence; Capital market reactions; Difference-in-difference; India

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