Pre-adoption market reaction to IFRS 9:a cross-country event-study

We are the first to examine the market reaction to 13 announcement dates related to IFRS 9 for over 5400 European listed firms. We find an overall positive reaction to the introduction of IFRS 9. The regulation is particularly beneficial to shareholders of firms in countries with weaker rule of law and a smaller divergence between local GAAP and IAS 39. Bootstrap simulations rule out the possibility that sampling error or data mining are driving our findings. Our main findings are also robust to confounding events and the extent of the media coverage for each event. These results suggest that investors perceive the new regulation as shareholder-wealth enhancing and support the view that stronger comparability across accounting standards of European firms is beneficial to international investors and outweighs the costs of poorer firm-specific information

How should we estimate value-relevance models? Insights from European Data

We study the consequences of unobserved heterogeneity when employing different econometric methods in the estimation of two major value-relevance models: the Price Regression Model (PRM) and the Return Regression Model (RRM). Leveraging a large panel data set of European listed companies, we first demonstrate that robust Hausman tests and Breusch-Pagan Lagrange Multiplier tests are of fundamental importance to choose correctly among a fixed-effects model, a random-effects model, or a pooled OLS model. Second, we provide evidence that replacing firm fixed-effects with country and industry fixed-effects can lead to large differences in the magnitude of the key coefficients, with serious consequences for the interpretation of the effect of changes in earnings and book values per share on firm value. Finally, we offer recommendations to applied researchers aiming to improve the robustness of their econometric strategy

The chief financial officer (CFO) profile and R&D investment intensity: evidence from listed European companies

urpose – This study aims to investigate whether the characteristics of the chief financial officer (CFO) have an impact on the intensity of the corporate research and development (R&D) investment. Design/methodology/approach – Based on hand-collected data for the CFOs of a sample of the largest European listed companies for the period 2013–2016, this study uses regression analyses to test empirically the association of CFO education, CFO gender and CFO age with R&D investment intensity. Findings – The presence of female CFOs, CFOs with a Master of Business Administration (MBA) or Doctor of Philosophy (PhD) degree and older CFOs is positively associated with the intensity of R&D investment. Research limitations/implications – This study relies on some observable characteristics of CFOs and focuses on large listed companies. Practical implications – The results of this study may help investors, stakeholders and practitioners to understand better which type of CFO characteristics are more likely to result in higher firm-level R&D investment intensity. Originality/value – This study offers the first insights into the impact of CFOs, as the most prominent C-suite executives, on the level of corporate investments in R&D activity

New Accounting Rules for Loan Loss Provisions in Europe: Much Ado about Nothing?

While there is a vigorous academic and policy debate about the implications of the Incurred Loss Model (ILM) for financial stability, there is no empirical evidence on whether the new Expected Loss Model (ELM) introduced by IASB benefits international investors. We address this relevant issue by investigating the price reaction to announcements related to the impairment rules incorporated in IFRS 9 on a sample of 137 European listed banks for the period from November 2009 to July 2014. We provide evidence that the abnormal returns related to these events are substantially uncorrelated with proxies of timely loss recognition, earnings management, and capital management, suggesting that the new ELM is not perceived to bring about substantial benefits as compared to the ILM. These results are robust to confounding events, international media coverage, and winsorizing techniques. Bootstrap analysis supports the hypothesis that significant results for some of the events and some of the proxies may be due to over-sized tests for the sample period under examination. Our findings shed light on a recent claim in the literature that the quality of financial statements bears at best second-order effects on firm value

Sins of Omission in Value Relevance Empirical Studies

We contribute to the value relevance literature by investigating critical methodological deficiencies emerged in past and current empirical research. Using Monte Carlo simulations calibrated on the basis of the statistical properties of market and accounting data for a large sample of European listed companies, we are the first to document and quantify the effects of neglecting the lag of stock price as an explanatory variable in the conventional approach for estimating price level regressions. We demonstrate that for European listed companies this is an important source of omitted variable bias and the extent of such bias increases as the autocorrelation coefficient for stock price and the explanatory variables increases. We show that using alternative specifications which deflate the accounting variables by the lag of stock price, commonly employed in the accounting literature, can lead to high over-rejection rates. Our findings are relevant for the interpretation of most of the empirical studies on the impact of IFRS on value relevance in Europe

Firms’ disclosure compliance with IASB’s Management Commentary framework:an empirical investigation

The continuous demand for enhanced financial reporting has highlighted the decline of the usefulness of traditional financial statements in satisfying the informational needs and requirements of users. Despite there being several points of view, many proposals revolve around the increase of narrative disclosure accompanying financial statements. It is apparent that the regulatory attention regarding narrative reporting has mainly focused on the Management Commentary (MC) report. As a result, the accounting standard setters have promoted different approaches to improve the comparability and usefulness of the MC among the firms. In December 2010, the IASB completed the project on the MC disclosure framework, through the publishing of a non-binding IFRS practice statement (IFRSps). The aim of this study is to analyze the information conveyed by the MC report for a sample of firms listed on the Italian Stock Exchange at the end of 2010. More specifically, we investigate the determinants affecting the extent of firms disclosure compliance with the IASB’s MC voluntary guidelines, reported in the IFRSps, soon after its implementation. To the best of our knowledge, this is the first empirical study which examines the explanatory factors affecting the extent of voluntary disclosure convergence in relation to IFRSps, with reference to Italy. To analyze the informational content of each MC report, we create an index of disclosure compliance using a self-constructed checklist designed on the IASB’s MC guidelines. To assess the relationship between the index of disclosure compliance and the firm characteristics, we use a regression model. Consistent with previous accounting studies, our results suggest that firm size and ownership diffusion are positively related to the extent of disclosure compliance with IASB’s MC guidelines. On the other hand, the leverage and profitability were found to be unrelated to the index of disclosure compliance. The results also show that the level of disclosure compliance to the IASB’s MC guidance is low, ranging from 10% to 76%, averaging 39%. This means that despite the continued demand for better comparability in financial reporting practices, in Italy a large number of firms do not seem to converge towards a single set of standards for both the narrative and numerical-financial disclosure

Firms’ disclosure compliance with IASB’s Management Commentary framework:an empirical investigation

The continuous demand for enhanced financial reporting has highlighted the decline of the usefulness of traditional financial statements in satisfying the informational needs and requirements of users. Despite there being several points of view, many proposals revolve around the increase of narrative disclosure accompanying financial statements. It is apparent that the regulatory attention regarding narrative reporting has mainly focused on the Management Commentary (MC) report. As a result, the accounting standard setters have promoted different approaches to improve the comparability and usefulness of the MC among the firms. In December 2010, the IASB completed the project on the MC disclosure framework, through the publishing of a non-binding IFRS practice statement (IFRSps). The aim of this study is to analyze the information conveyed by the MC report for a sample of firms listed on the Italian Stock Exchange at the end of 2010. More specifically, we investigate the determinants affecting the extent of firms disclosure compliance with the IASB’s MC voluntary guidelines, reported in the IFRSps, soon after its implementation. To the best of our knowledge, this is the first empirical study which examines the explanatory factors affecting the extent of voluntary disclosure convergence in relation to IFRSps, with reference to Italy. To analyze the informational content of each MC report, we create an index of disclosure compliance using a self-constructed checklist designed on the IASB’s MC guidelines. To assess the relationship between the index of disclosure compliance and the firm characteristics, we use a regression model. Consistent with previous accounting studies, our results suggest that firm size and ownership diffusion are positively related to the extent of disclosure compliance with IASB’s MC guidelines. On the other hand, the leverage and profitability were found to be unrelated to the index of disclosure compliance. The results also show that the level of disclosure compliance to the IASB’s MC guidance is low, ranging from 10% to 76%, averaging 39%. This means that despite the continued demand for better comparability in financial reporting practices, in Italy a large number of firms do not seem to converge towards a single set of standards for both the narrative and numerical-financial disclosure

Firms’ disclosure compliance with IASB’s Management Commentary framework:an empirical investigation

The continuous demand for enhanced financial reporting has highlighted the decline of the usefulness of traditional financial statements in satisfying the informational needs and requirements of users. Despite there being several points of view, many proposals revolve around the increase of narrative disclosure accompanying financial statements. It is apparent that the regulatory attention regarding narrative reporting has mainly focused on the Management Commentary (MC) report. As a result, the accounting standard setters have promoted different approaches to improve the comparability and usefulness of the MC among the firms. In December 2010, the IASB completed the project on the MC disclosure framework, through the publishing of a non-binding IFRS practice statement (IFRSps). The aim of this study is to analyze the information conveyed by the MC report for a sample of firms listed on the Italian Stock Exchange at the end of 2010. More specifically, we investigate the determinants affecting the extent of firms disclosure compliance with the IASB’s MC voluntary guidelines, reported in the IFRSps, soon after its implementation. To the best of our knowledge, this is the first empirical study which examines the explanatory factors affecting the extent of voluntary disclosure convergence in relation to IFRSps, with reference to Italy. To analyze the informational content of each MC report, we create an index of disclosure compliance using a self-constructed checklist designed on the IASB’s MC guidelines. To assess the relationship between the index of disclosure compliance and the firm characteristics, we use a regression model. Consistent with previous accounting studies, our results suggest that firm size and ownership diffusion are positively related to the extent of disclosure compliance with IASB’s MC guidelines. On the other hand, the leverage and profitability were found to be unrelated to the index of disclosure compliance. The results also show that the level of disclosure compliance to the IASB’s MC guidance is low, ranging from 10% to 76%, averaging 39%. This means that despite the continued demand for better comparability in financial reporting practices, in Italy a large number of firms do not seem to converge towards a single set of standards for both the narrative and numerical-financial disclosure