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IFRS adoption in Europe and investment-cash flow sensitivity: outsider versus insider economies

By Thomas Schleicher, Ahmed Tahoun and Martin Walker

Abstract

We examine the economic consequences of the mandatory adoption of IFRS in EU countries by showing which types of economies have the largest reduction in investment-cash flow sensitivity post-IFRS. We also examine whether the reduction in investment-cash flow sensitivity depends on firm size as well as economy type. We find that the investment-cash flow sensitivity of insider economies is higher than that of outsider economies pre-IFRS and that IFRS reduces the investment-cash flow sensitivity of insider economies more than that of outsider economies. Also, we find that small firms in insider economies have the highest sensitivity of investment to lagged cash flow pre-IFRS, and that they are no longer sensitive to lagged cash flow post-IFRS. Overall, our results suggest that IFRS adoption might have improved the functioning of capital markets in relation to small firms in insider economies

Topics: HC Economic History and Conditions, HD Industries. Land use. Labor, HF5601 Accounting, HG Finance
Publisher: Elsevier
Year: 2010
DOI identifier: 10.1016/j.intacc.2010.04.007
OAI identifier: oai:eprints.lse.ac.uk:36837
Provided by: LSE Research Online
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