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Stock market synchronicity – an alternative approach to assessing the information impact of Australian IFRS
Author(s) -
Bissessur Sanjay,
Hodgson Allan
Publication year - 2012
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.2010.00388.x
Subject(s) - synchronicity , international financial reporting standards , accounting , comparability , business , transparency (behavior) , earnings , stock (firearms) , computer science , mechanical engineering , philosophy , mathematics , epistemology , combinatorics , engineering , computer security
How has the mandatory adoption in 2005 of International Financial Reporting Standards in (IFRS) affected information flow for investors in Australia? This paper investigates impact by examining synchronicity issues. Morck et al. (2000) label the degree to which stock prices depend upon market and industry wide information as market synchronicity, and the degree to which they reflect firm specific information as idiosyncratic dependency. Increased synchronicity can signal several events, including a loss of confidence in firm specific accounting data, reduced transparency, or evidence of a greater degree of cross sectional comparability. We develop and test three theoretical models on the impact of IFRS and find a general decrease in synchronicity in the first two post‐IFRS years, followed by a reversion to a significantly higher level in later years. Further tests reveal lower analyst forecast earnings errors post‐IFRS. Results provide restrictive support for the International Accounting Standards Board contention that IFRS accounting provides higher specific and comparable information content – at least for sophisticated financial analysts.