The Effect of the Mandatory Application of IFRS on the Value Relevance of Accounting Data: Some Evidence from Greece

Abstract

In this study we tested the effect of the mandatory adoption of IFRS upon
\nthe value relevance of earnings and book values using data from the Athens Stock
\nExchange that covered a period of two years before and two years after the
\nmandatory adoption of IFRS. Greece is a code-law country with strong tax
\nconformity, bank orientation and conservative accounting rules which have a
\nnegative effect on the value relevance of financial statements. As IFRS adoption
\npromotes fair value accounting and weakens the link between taxation and
\naccounting rules we expect earnings and book value to become more value
\nrelevant ceteris paribus. We report that the adoption of IFRS positively affected
\nthe value relevance of consolidated net income and book value although it had no
\neffect on their unconsolidated counterparts and that consolidated accounting
\nnumbers are by far more value relevant than unconsolidated ones in both periods
\nand, unexpectedly, this superiority is more pronounced after IFRS adoption. We
\nalso report that disaggregating net income increases the explanatory power of the
\nearnings – book value capitalization (EBVC) model. Finally, we report that
\nalthough the overall explanatory power of the model increases, the incremental
\nexplanatory power of both net income and financial income decreases. These last
\nfindings question the expected benefits of specific IFRS rules concerning the
\nmeasurement of these income components. Nevertheless, assuming that the total
\nimpact of IFRS adoption is captured by the overall explanatory power of the
\nmodels which actually increased, we conclude that mandating IFRS may prove
\nbeneficial even in an unfavorable context.