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IFRS adoption in Europe and investment-cash flow sensitivity: Outsider versus insider economies

Journal

International Journal of Accounting

Subject

Accounting

Publishing details

International Journal of Accounting 2010 Vol 45:2 p 143-168

Authors / Editors

Schleicher T;Tahoun A;Walker M

Biographies

Ahmed Tahoun

Publication Year

2010

Abstract

We examine the economic consequences of the mandatory adoption of IFRS in EU countries by showing which types of economies have the largest reduction in investment-cash flow sensitivity post-IFRS. We also examine whether the reduction in investment-cash flow sensitivity depends on firm size as well as economy type. We find that the investment-cash flow sensitivity of insider economies is higher than that of outsider economies pre-IFRS and that IFRS reduces the investment-cash flow sensitivity of insider economies more than that of outsider economies. Also, we find that small firms in insider economies have the highest sensitivity of investment to lagged cash flow pre-IFRS, and that they are no longer sensitive to lagged cash flow post-IFRS. Overall, our results suggest that IFRS adoption might have improved the functioning of capital markets in relation to small firms in insider economies.

Keywords

IFRS; Investment-cash flow sensitivity; Insider and outsider economies; EU countries

Available on ECCH

No


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