The Effects of Mandatory Adoption of International Financial Reporting Standards on Information Environments

Abstract

This study examines the information effects of mandatory adoption of International Financial Reporting Standards (IFRS) on listed firms in European countries. We find that both the analyst information environment (proxied by analyst forecast characteristics) and the public information environment (proxied by the information content of earnings announcements and the importance of earnings announcements relative to the total information environments of firms) improved for mandatory adopters after the IFRS regulation became effective in 2005. We also find similar information effects around 2005 for firms that voluntarily adopted IFRS before 2005. Additional analyses suggest that the improvement in the information content of earnings announcements in the post-IFRS period is primarily driven by earnings components excluded from analysts’ earnings forecasts. In addition, we find that adoption effects differ across countries and across legal origins.