The Effect of Mandatory IFRS Adoption on Financial Analysts’ Information Environment


  • We thank an anonymous referee and the editor, Richard Leftwich, for many helpful suggestions and comments. We also thank Bill Baber, Anna Brown, Jay Dahya, Masako Darrough, Paquita Davis-Friday, Angela Gore, Nicole Heron, Gilles Hilary, Thomas Jeanjean, Sok-Hyon Kang, Krishna Kumar, Fred Lindahl, Carol Marquardt, Yun Zhang and seminar participants at George Washington University, the 2008 AAA annual meetings, and the 2010 European Accounting Association annual meetings. Additionally, we are also grateful to Maria Helena Almeida, Ingrid Engshagen, Julie Erhardt, Frank-Thomas Graefe, David Grünberger, Virpi Haaramo, Jitka Hrudova, Liza McAndrew-Mobery, Paul Munter, Emmanuel Paret, Flemming Petersen, and Siw-Mette Thomassen for providing valuable input regarding institutional details. We acknowledge the contribution of IBES International Inc. for providing earnings per share forecast data; Donal Byard also gratefully acknowledges the financial support provided by a PSC-CUNY grant from the City University of New York (PSC-CUNY # 61815-00 39).


This paper examines the effect of the mandatory adoption of International Financial Reporting Standards (IFRS) by the European Union on financial analysts’ information environment. To control for the effect of confounding concurrent events, we use a control sample of firms that had already voluntarily adopted IFRS at least two years prior to the mandatory adoption date. We find that analysts’ absolute forecast errors and forecast dispersion decrease relative to this control sample only for those mandatory IFRS adopters domiciled in countries with both strong enforcement regimes and domestic accounting standards that differ significantly from IFRS. Furthermore, for mandatory adopters domiciled in countries with both weak enforcement regimes and domestic accounting standards that differ significantly from IFRS, we find that forecast errors and dispersion decrease more for firms with stronger incentives for transparent financial reporting. These results highlight the important roles of enforcement regimes and firm-level reporting incentives in determining the impact of mandatory IFRS adoption.