Do IFRS-Based Earnings Announcements Have More Information Content than Canadian GAAP-Based Earnings Announcements?

Shahid Ali Khan, Mark Anderson, Hussein Warsame, Michael Wright

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

Using an event-study methodology, this study investigates whether the information content of earnings announcements changed for firms traded on the Toronto Stock Exchange (TSX) and the Canadian Venture Exchange (TSXV) following mandatory adoption of International Financial Reporting Standards (IFRS) in Canada. A priori, it may be argued that the information content of earnings would increase for both TSX and TSXV firms if IFRS earnings provided more value-relevant information than Canadian GAAP earnings. Increased value relevance of information provided by IFRS earnings would likely reflect increased measurement of changes in net asset values based on expectations as opposed to realizations. Because values based on expectations are subject to greater divergence of opinion than values based on realizations, greater value relevance is likely to be accompanied by higher abnormal return volatility and abnormal trading volume during announcement periods. Consistent with this argument, we find that abnormal volatility and abnormal volume during earnings announcement periods were higher in post-IFRS announcement periods than in pre-IFRS announcement periods for firms traded on the TSX. We discriminate across the two exchanges in terms of information quality based on the mix of institutional and retail investors, analyst following, concentration in the oil, gas and mining sectors, and size of firm. We test for a residual difference in information content based on the more speculative nature of the TSXV exchange and find some evidence that divergence of opinion was higher for TSXV firms than TSX firms in the pre-IFRS period but this residual difference does not carry through to the post-IFRS period.

Original languageEnglish (US)
Pages (from-to)276-302
Number of pages27
JournalAccounting Perspectives
Volume14
Issue number3
DOIs
StatePublished - Sep 1 2015

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Earnings announcements
Information content
International Financial Reporting Standards
Stock exchange
Announcement
Value relevance
Divergence
Quality of information
Event study methodology
Trading volume
Oil
Investors
Abnormal returns
Venture
Asset value
Return volatility
Retail
Canada
Gas
Analyst following

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance

Cite this

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abstract = "Using an event-study methodology, this study investigates whether the information content of earnings announcements changed for firms traded on the Toronto Stock Exchange (TSX) and the Canadian Venture Exchange (TSXV) following mandatory adoption of International Financial Reporting Standards (IFRS) in Canada. A priori, it may be argued that the information content of earnings would increase for both TSX and TSXV firms if IFRS earnings provided more value-relevant information than Canadian GAAP earnings. Increased value relevance of information provided by IFRS earnings would likely reflect increased measurement of changes in net asset values based on expectations as opposed to realizations. Because values based on expectations are subject to greater divergence of opinion than values based on realizations, greater value relevance is likely to be accompanied by higher abnormal return volatility and abnormal trading volume during announcement periods. Consistent with this argument, we find that abnormal volatility and abnormal volume during earnings announcement periods were higher in post-IFRS announcement periods than in pre-IFRS announcement periods for firms traded on the TSX. We discriminate across the two exchanges in terms of information quality based on the mix of institutional and retail investors, analyst following, concentration in the oil, gas and mining sectors, and size of firm. We test for a residual difference in information content based on the more speculative nature of the TSXV exchange and find some evidence that divergence of opinion was higher for TSXV firms than TSX firms in the pre-IFRS period but this residual difference does not carry through to the post-IFRS period.",
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Do IFRS-Based Earnings Announcements Have More Information Content than Canadian GAAP-Based Earnings Announcements? / Khan, Shahid Ali; Anderson, Mark; Warsame, Hussein; Wright, Michael.

In: Accounting Perspectives, Vol. 14, No. 3, 01.09.2015, p. 276-302.

Research output: Contribution to journalArticle

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