Does mandatory IFRS adoption affect crash risk?

Mark L. DeFond, Mingyi Hung, Siqi Li, Yinghua Li

Research output: Contribution to journalArticle

74 Citations (Scopus)

Abstract

We test whether mandatory IFRS adoption affects firm-level "crash risk," defined as the frequency of extreme negative stock returns. We separately analyze nonfinancial firms and financial firms because IFRS is likely to affect their crash risk differently. We find that IFRS adoption decreases crash risk among nonfinancial firms, especially among firms in poor information environments and in countries where IFRS adoption results in larger and more credible changes to local GAAP. In contrast, IFRS adoption has no effect on crash risk for financial firms, on average, but decreases crash risk among firms less affected by IFRS's fair value provisions, and increases crash risk among banks in countries with weak banking regulations. Overall, our results are consistent with the increased transparency from IFRS adoption broadly reducing crash risk among nonfinancial firms, but more selectively among financial firms, and with financial regulations playing a complementary role in implementing IFRS among financial firms.

Original languageEnglish (US)
Pages (from-to)265-299
Number of pages35
JournalAccounting Review
Volume90
Issue number1
DOIs
StatePublished - Jan 1 2015

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Crash
IFRS adoption
International Financial Reporting Standards
Information environment
Transparency
Fair value
Stock returns
Bank risk
Firm risk
Financial regulation
Banking regulation

Keywords

  • Crash risk
  • Financial firms
  • International financial reporting standards
  • Nonfinancial firms

ASJC Scopus subject areas

  • Finance
  • Accounting
  • Economics and Econometrics

Cite this

Does mandatory IFRS adoption affect crash risk? / DeFond, Mark L.; Hung, Mingyi; Li, Siqi; Li, Yinghua.

In: Accounting Review, Vol. 90, No. 1, 01.01.2015, p. 265-299.

Research output: Contribution to journalArticle

DeFond, Mark L. ; Hung, Mingyi ; Li, Siqi ; Li, Yinghua. / Does mandatory IFRS adoption affect crash risk?. In: Accounting Review. 2015 ; Vol. 90, No. 1. pp. 265-299.
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