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Title: Who Are the Losers of IFRS Adoption in Europe? An Empirical Examination of the Cash Flow Effect of Increased Disclosure
Authors: Charitou, Andreas 
Karamanou, Irene 
Lambertides, Neophytos 
Keywords: Cash flow effect;Default risk;Disclosure;IFRS adoption;Losers
Category: Economics and Business
Field: Social Sciences
Issue Date: 1-Apr-2015
Publisher: SAGE Publications Ltd
Source: Journal of Accounting, Auditing and Finance, 2015, Volume 30, Issue 2, Pages 150-180
metadata.dc.doi: 10.1177/0148558X14549458
Abstract: Unlike prior studies that examine the denominator effect, this study investigates the cash flow effect of disclosure as captured by firms exhibiting increases in default risk (DR) around the 2005 mandatory International Financial Reporting Standards (IFRS) adoption in Europe. Using the Merton (1973, 1974) option-based probability of default measure (DR) on a data set of 415 winner firms (with decreases in DR) and 295 loser firms (with increases in DR), we show that loser firms exhibit the same or better financial characteristics in the pre-IFRS adoption period compared with the winner sample. However, after IFRS, loser firms exhibit deteriorating characteristics, with smaller increases in their Tobin's q valuations, greater increases in leverage, and poorer return performance. Logistic analysis suggests that even though in the pre-IFRS period loser firms exhibit greater profitability and analyst following and lower leverage, in the post-IFRS period their profitability is less than that of winner firms while exhibiting similar leverage and analyst following characteristics. Through an examination of the determinants of the change in DR, the results suggest that loser firms incur a greater increase in DR the poorer their home country's legal enforcement environment, the lower their analyst following, and the greater their propensity to manage earnings. In general, our results are consistent with the existence of a significant cash flow effect for the loser sample.
ISSN: 0148558X
Rights: © The Author(s) 2014.
Type: Article
Appears in Collections:Άρθρα/Articles

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