Did Eliminating the 20-F Reconciliation Between IFRS and US GAAP Matter?

Abstract

The SEC decided in 2007 to allow foreign private issuers who use IFRS as promulgated by the IASB (pure IFRS filers, hereafter) to stop providing reconciliations to US GAAP. Some opposed the measure because the limited academic literature available at the time indicated that the reconciliation is useful. But this research mostly used data prior to the formal convergence efforts of the IASB and FASB and did not focus on pure IFRS filers. We examine the information content of the reconciliations for a sample of 88 pure IFRS filers during 2006 and 2007. Consistent with the reconciliation lacking usefulness for pure IFRS filers just prior to 2008, we find no evidence that the reconciliation for these IFRS filers is associated with abnormal trading volume, abnormal return volatility, and changes in the bid-ask spread around the release of the reconciliation. We also find no evidence that eliminating the reconciliation changed the market’s response to the 20-Fs of pure IFRS filers in 2008. We do, however, find that the average pure IFRS filer accelerated filing its 20-F by 9.6 days in 2008 and even more so for those with more complex reconciliations, which is consistent with meaningful cost savings.