Abstract
European-listed companies and many emerging countries have been required to present their consolidated financial statements in compliance with the International Financial Reporting Standards (IFRS) since 2005. Having cross-border comparability and transparency with this uniform accounting system is expected to provide higher accounting quality and value relevance. Evaluation of financial performance in terms of value relevance of IFRS is not only vital for existing investors or stakeholders but also for those who want to invest at the international level. Thus, in this study, we examine the value relevance of earnings and book value of equity on share prices through using Ohlson (1995) valuation model. While 2001 to 2004 is conducted as the pre-IFRS period, 2005-2008 is a post-IFRS period to display the change in value relevance in the same number of years. Our sample includes only nonfinancial firms that operate on BIST index. Since financial firms are subject to different regulations, we exclude them from the sample. The results show that the accounting information produced under IFRS is more value relevant. We test the value relevance with both cross-sectional and pooled regression for the periods. In addition, we use panel data analysis (survival analysis) to validate the increase in value relevance between the periods. We also test the firm size and earnings announcement effect on value relevance for robustness.
Highlights
Harmonization of national accounting systems is an ongoing process, and it has been an issue of vital importance for accounting literature and international and regional institutions since 1970 (Gastón et al, 2010)
Even though U.S Generally Accepted Accounting Principles (GAAP) and International Accounting Standards compete for international acceptance as reporting standards for all over the world (Bartov et al, 2005), these institutions have made considerable efforts and promote the convergence which refers to the process of narrowing differences between International Financial Reporting Standards (IFRS) and the accounting standards (Ball, 2006)
We assess the effects of mandatory IFRS adoption by reference to Ohlson (1995) valuation model to examine the value relevance of the variables of book value per share and earnings per share
Summary
Harmonization of national accounting systems is an ongoing process, and it has been an issue of vital importance for accounting literature and international and regional institutions since 1970 (Gastón et al, 2010). Unless accounting standards should be of high-quality, flexible, applicable and enforceable, value relevance of financial reporting is not adequate alone to provide the better financial environment. IFRS adoption affects the value relevance of accounting information for countries with strong investor protection and high-quality financial reporting and enforcement (Chalmers et al, 2011). Examining the IFRS adoption process in emerging markets and highlighting the value relevance of accounting information is vital for the right assessment. The aim of this paper is to display the effect of mandatory adoption of International Financial Reporting Standards on the value relevance of earnings and the book value of equity in emerging markets in Turkey.
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