Value Relevance of Mandatory IFRS Reporting for Private Companies in Turkish Financial Markets

Abstract

Abstract A new Turkish Commercial Code was enacted in Turkey in 2011 by Law # 6102, introducing several radical changes in a broad range of legal, organizational, administrative, and operational fields in corporate life in the country. Among the most critical of these changes were the newly introduced legal requirements for companies to produce IFRS-based audit reports regardless of the size of the firms or whether they are publicly or privately held companies. We examine the issue of mandatory of IFRS reporting from the perspective of the Economic Theory of Networks with respect to creating and enhancing corporate value as well as net social benefits of “network externalities.” We look at a review of the international examples of “value relevance” of mandatory IFRS reporting in a number of markets though there exists quite a limited array of research and data on unlisted/private companies in the literature. However, the paper argues that considering; a) the importance of the private companies in the economy, b) the impact of audited statements on the companies’ ability to access higher quality financial resources and higher levels of management efficiency and, c) the resulting outcome in more efficient allocation of capital in the economy, implementation of IFRS reporting in Turkey on as broad a scale as technically possible would constitute an important “value driver” at micro as well as macro economic levels.