The Properties of Bank’s Accounting Numbers in an International Context Before and After the Introduction of IFRS: A Value Relevance Perspective

Abstract

This study concentrates on properties of banks’ accounting numbers in an international context before and after the introduction of IFRS. In particular the objective is to answer to the followings four questions: (1) Are there systematic differences in value relevance between banks’ earnings and book value across European countries and US‘ (2) Do banks’ book value and earnings convey different information to stock valuation‘ (3) Do banks accounting earnings present different properties in US and Europe‘ (4) What changed with the introduction of IFRS in Europe‘ Data show that before the introduction of IFRS banks’ earnings and book value, together, in Italy and France were as value relevant as in US, while in Germany the value relevance appears inferior. Looking to valuation properties of banks’ accounting numbers across countries considered, data show that in US and surprisingly in Germany earnings dominated book value, while the opposite happened in France. In Italy both earnings and book value had statistically significant incremental explanatory power. The results of the analyses performed change radically in 2005 after the introduction of IFRS in Europe. European banks’ earnings become more value relevant and dominate book value as in US. In particular, as in US, earnings appear very timely but not conservative. All together the results suggest that, in a value relevance perspective, the introduction of IFRS has standardized the quality of banks’ earnings and book value worldwide. Furthermore is confirmed banking industry’s speciality, actually the properties of banks’ accounting numbers, although standardised worldwide, appear different from those of industrial firms’ accounting numbers as reported in previous international accounting literature. This evidence could suggest the need for special accounting standards dedicated to financial institutions.