IFRS adoption and investor perceptions of earnings quality: evidence from Korea
This study examines the consequences of International Financial Reporting Standards (IFRS) adoption in terms of the investor perception of earnings quality in the Korean stock market. Building on evidence from Ecker et al. (2006) suggesting that return-based earnings quality (E-loading), as captured...
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| Format: | Article |
| Language: | English |
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LLC "CPC "Business Perspectives"
2018-01-01
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| Series: | Investment Management & Financial Innovations |
| Subjects: | |
| Online Access: | https://businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/9923/IMFI_2018_01_Shin.pdf |
| _version_ | 1826907355334311936 |
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| author | Heejeong Shin Su-In Kim Sangmi Kim |
| author_facet | Heejeong Shin Su-In Kim Sangmi Kim |
| author_sort | Heejeong Shin |
| collection | DOAJ |
| description | This study examines the consequences of International Financial Reporting Standards (IFRS) adoption in terms of the investor perception of earnings quality in the Korean stock market. Building on evidence from Ecker et al. (2006) suggesting that return-based earnings quality (E-loading), as captured by the sensitivity of stock returns to accounting information risk, accurately represents investor perceptions of earnings information risk, the authors examine whether E-loading is different between the pre- and post-IFRS adoption periods. Using KSE-listed firms from 2006 to 2014, the authors find the evidence that the extent of stock return sensitivity to information risk embedded in financial statements is greater in the period of post-IFRS adoption than in the period of pre-IFRS adoption. This finding indicates that even though accounting-based earnings quality improves after the adoption of IFRS, investors perceive earnings information after the adoption of IFRS as riskier than before. In addition, the difference in investor perception is more pronounced for firms with low accruals quality as captured by discretionary accruals, indicating that the effect of IFRS adoption on return-based earnings quality is distinctive from that on accounting-based earnings quality. The paper contributes to the literature on IFRS by exploring the effect of IFRS adoption through a new perspective on earnings quality in capital market. |
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| format | Article |
| id | doaj.art-a5ac5ecf16b847e7a82a35214b5db8a7 |
| institution | Directory Open Access Journal |
| issn | 1810-4967 1812-9358 |
| language | English |
| last_indexed | 2025-02-17T09:05:04Z |
| publishDate | 2018-01-01 |
| publisher | LLC "CPC "Business Perspectives" |
| record_format | Article |
| series | Investment Management & Financial Innovations |
| spelling | doaj.art-a5ac5ecf16b847e7a82a35214b5db8a72025-01-02T16:35:41ZengLLC "CPC "Business Perspectives"Investment Management & Financial Innovations1810-49671812-93582018-01-01151263410.21511/imfi.15(1).2018.049923IFRS adoption and investor perceptions of earnings quality: evidence from KoreaHeejeong Shin0Su-In Kim1Sangmi Kim2Ph.D., Ewha School of Business, Ewha Womans UniversityPh.D., Researcher, Ewha School of Business Management Research CenterPh.D. Student, Ewha School of Business, Ewha Womans UniversityThis study examines the consequences of International Financial Reporting Standards (IFRS) adoption in terms of the investor perception of earnings quality in the Korean stock market. Building on evidence from Ecker et al. (2006) suggesting that return-based earnings quality (E-loading), as captured by the sensitivity of stock returns to accounting information risk, accurately represents investor perceptions of earnings information risk, the authors examine whether E-loading is different between the pre- and post-IFRS adoption periods. Using KSE-listed firms from 2006 to 2014, the authors find the evidence that the extent of stock return sensitivity to information risk embedded in financial statements is greater in the period of post-IFRS adoption than in the period of pre-IFRS adoption. This finding indicates that even though accounting-based earnings quality improves after the adoption of IFRS, investors perceive earnings information after the adoption of IFRS as riskier than before. In addition, the difference in investor perception is more pronounced for firms with low accruals quality as captured by discretionary accruals, indicating that the effect of IFRS adoption on return-based earnings quality is distinctive from that on accounting-based earnings quality. The paper contributes to the literature on IFRS by exploring the effect of IFRS adoption through a new perspective on earnings quality in capital market.https://businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/9923/IMFI_2018_01_Shin.pdfearnings qualityIFRS adoptionreturn-based earnings quality |
| spellingShingle | Heejeong Shin Su-In Kim Sangmi Kim IFRS adoption and investor perceptions of earnings quality: evidence from Korea Investment Management & Financial Innovations earnings quality IFRS adoption return-based earnings quality |
| title | IFRS adoption and investor perceptions of earnings quality: evidence from Korea |
| title_full | IFRS adoption and investor perceptions of earnings quality: evidence from Korea |
| title_fullStr | IFRS adoption and investor perceptions of earnings quality: evidence from Korea |
| title_full_unstemmed | IFRS adoption and investor perceptions of earnings quality: evidence from Korea |
| title_short | IFRS adoption and investor perceptions of earnings quality: evidence from Korea |
| title_sort | ifrs adoption and investor perceptions of earnings quality evidence from korea |
| topic | earnings quality IFRS adoption return-based earnings quality |
| url | https://businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/9923/IMFI_2018_01_Shin.pdf |
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