The Impact of Institutional Factors and IFRS on the Value Relevance of Accounting Information: Evidence from Chinese Ah- Shares

Abstract

This study investigates whether institutional factors affect the value relevance of accounting information in Chinese cross-listed firms during the years from 2000 to 2013. Specifically, the study concentrates on whether the IFRS convergence is associated with incremental improvement on the value relevance of accounting information, and how institutional factors affect the value relevance of these cross-listed firms. We find that the IFRS convergence could indeed promote higher quality of accounting information, as the value relevance increases when firms switched from complying with the China GAAP to the IFRS-based accounting standards. Besides, the impact of institutional factors on the value relevance has been proved to be varied between Mainland China and Hong Kong stock market. This result suggests that regions with a strong and sound institutional framework and thus earning higher scores in the Worldwide Governance Indicators further support and enhance the neutrality of accounting information. Accordingly, such regions would correspond to a lower interventionist power in the financial reporting system and would therefore attract more investments.