Abstract
The purpose of this paper is to investigate whether a change in stock price synchronicity after IFRS adoption differs by industry characteristics. IFRS adoption was expected to improve earnings quality and comparability. Industry concentration and homogeneity are utilized as industry characteristics, which are known as determinants to earnings quality and comparability to examine IFRS adoption effect on the synchronicity. Using Korean firms listed from 2006 to 2015, the author found that stock price synchronicity decreases after IFRS adoption. The reduction in synchronicity is larger for firms in a concentrated industry. However, the researcher didn’t find that incremental effect of homogeneity on synchronicity changes around IFRS adoption. These results remain unchanged after several robustness tests. The results imply that earnings quality after IFRS adoption improves, while comparability effect is not evident in the Korean market. The paper has implications that co-movement of stock price decreases after IFRS adoption in that delivering firm-specific information to investors; in addition, the magnitude of impacts of IFRS adoption differs by the industry characteristics. The author extends prior studies about IFRS adoption effect on the capital market by providing that the effects need to be examined after considering the industry characteristics.
Highlights
It is investigated whether the impact of the mandatory adoption of International Financial Reporting Standards (IFRS) on stock price synchronicity differs by industry characteristics.IFRS adoption requires firms to deliver information regarding their intrinsic value by demanding more disclosure and allowing firms a broader range of accounting policies (Schipper, 2005; Barth, 2006)
It is examined whether the change in stock price synchronicity after IFRS adoption is different according to the industry concentration and homogeneity
It is analyzed whether the synchronicity reduction after IFRS adoption is associated with the level of industry concentration
Summary
IFRS adoption requires firms to deliver information regarding their intrinsic value by demanding more disclosure and allowing firms a broader range of accounting policies (Schipper, 2005; Barth, 2006). This accounting regime change is expected to enable investors to capitalize firms’ idiosyncratic information into stock price. In line with this perspective, prior studies show that an increase in firm-specific information attributes to a reduction in stock price synchronicity (Kim & Shi, 2012; Shin & Choi, 2013; Beuselinck et al, 2009).
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