Value relevance of IFRS mandatory disclosure requirements

Tsalavoutas, I. and Dionysiou, D. (2014) Value relevance of IFRS mandatory disclosure requirements. Journal of Applied Accounting Research, 15(1), pp. 22-42. (doi:10.1108/JAAR-03-2013-0021)

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Publisher's URL: http://dx.doi.org/10.1108/JAAR-03-2013-0021

Abstract

Purpose

– The purpose of this paper is to address recent calls for research regarding the valuation implications of mandatory disclosure requirements (cf. Hassan et al., 2009; Leuz and Wysocki, 2008; Schipper, 2007).

Design/methodology/approach

– The paper measures compliance with all International Financial Reporting Standards (IFRS) mandatory disclosure requirements for a sample of firms. The paper subsequently explores whether the compliance scores (i.e. the mandatory disclosure levels) are value relevant and whether the value relevance of accounting numbers differs across high- and low-compliance/disclosure companies.

Findings

– The paper finds that the levels of mandatory disclosures are value relevant. Additionally, not only the relative value relevance (i.e. R2) but also the valuation coefficient of net income of high-compliance companies is significantly higher than that of low-compliance companies.

Research limitations/implications

– This paper is an indicative single country case study that focuses on the IFRS adoption year (2005) in the EU. It forms a new avenue for research regarding the valuation implications of mandatory disclosure requirements. It remains to future research to examine whether the findings also hold in other countries and periods.

Practical implications

– These findings are expected to be particularly relevant to standard setters and regulatory bodies that are concerned about the implications of mandatory disclosure requirements (Schipper, 2007).

Originality/value

– To the best of authors’ knowledge, this is the first paper that examines the value relevance implications of IFRS mandatory disclosure requirements, focusing on European country after 2005. The authors indicate that IFRS mandatory disclosures do lead to more transparent financial statements (cf. Pownall and Schipper, 1999), mitigating concerns about companies’ fundamentals (cf. Anctil et al., 2004).

Item Type:Articles
Additional Information:Selected by the journal editorial team as a Highly Commended Paper of 2014
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Tsalavoutas, Dr Ioannis
Authors: Tsalavoutas, I., and Dionysiou, D.
College/School:College of Social Sciences > Adam Smith Business School > Accounting and Finance
Journal Name:Journal of Applied Accounting Research
Publisher:Emerald
ISSN:0967-5426
ISSN (Online):1758-8855

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