Changes in value relevance of accounting information upon IFRS adoption: Evidence from Australia

Abstract

We investigate whether the adoption of IFRS increases the value relevance of accounting information for firms listed on the Australian Securities Exchange. Using a longitudinal study that covers pre-IFRS and post-IFRS periods during 1990–2008, we find that earnings become more value-relevant whereas the book value of equity does not. This impact is concentrated in the subsamples of industrial firms, both large and small, and firms reporting an AGAAP-IFRS accounting reconciliation upon IFRS adoption. Consistent with an increase in the value relevance of earnings, earnings also become more persistent around IFRS adoption. Our study suggests that even for a country categorized by strong investor protection and high-quality financial reporting and enforcement, IFRS adoption affects the associations between accounting information and market value.JEL Classification:M40, M41