Mandatory IFRS Adoption and Information Contents of Earnings Announcements: The Canadian Case

Abstract

We investigate the impact of mandatory adoption of International Financial Reporting Standards (IFRS) in Canada on the information content of earnings announcements of Canadian companies. The motivation stems from the possibility of filling the gap in the extant literature in a natural experiment setting in Canada, which is arguably a unique case with possible policy implications for the U.S. Moreover, there exists a paucity of research on impact of IFRS in the Canadian context. Using a comprehensive database of Canadian companies, we find that the mandatory adoption of IFRS enhances the information content of earnings announcement in terms of abnormal return volatility, but not in terms of abnormal trading volume. We provide an explanation for this departure from prior studies. Our results are robust to a broad array of sensitivity tests.