Mandatory IFRS Adoption and Analyst Coverage: Evidence from the UK

Mohammad Issa Almaharmeh,Ghassan Obeidat,Hamzah Al-Mawali

doi:10.5539/mas.v12n11p416

Abstract

This study investigates whether the mandatory adoption of International Financial Reporting Standards (IFRS) enforce financial analysts to cover the firms with their EPS forecast. After examining a large sample of 10,953 firm year observations from 1,467 distinct UK listed firms for the period between 1990 and 2013, the results suggest that, mandatory IFRS adoption attract more analysts to follow the firms. Where we find the number of financial analyst who cover the IFRS adopters is significantly higher than that for non-adopter firms.

Highlights

This research is motivated by the recent strands in the literature that examine the consequences of the mandatory adoption of International Financial Reporting Standards (IFRS)
This study investigates whether the mandatory adoption of International Financial Reporting Standards (IFRS) enforce financial analysts to cover the firms with their EPS forecast
Our variable of interest is the coefficient of the IFRS variable, which captures the incremental change in the number of financial analysts who follow the firms, for UK firms after mandatory IFRS adoption relative to pre-adoption period

Summary

Introduction

The harmonization of financial disclosure after IFRS adoption is expected to reduce information-processing costs for financial analysts, increase the number of financial analysts who follow the firms, and improve the quality of their expectations. Prior literature documented this effect Byard et al (2011), Horton et al (2013), and Houqe et al (2014) Where these papers find that the analysts’ forecast errors are decreased significantly after the mandatory adoption of IFRS. Kim and Shi (2012) suggest that improved disclosure levels, that associated with mandatory IFRS adoption, reduces the competitive advantage that some analysts would enjoy otherwise, and may lower analysts’ incentives to cover adopter firms

Objectives

Methods

Results

Discussion

Conclusion