Discussion Papers, Department of Finance and Management Science, Norwegian School of Economics (NHH)
No 2008/21:
The Value-Relevance of Adopting IFRS: Evidence from 145 NGAAP Restatements
Øystein Gjerde ()
, Kjell Henry Knivsflå ()
and Frode Sættem ()
Abstract: Firms listed on stock exchanges within the European
Economic Area are required to report consolidated financial statements
according to IFRS from 2005. The firms that adopted IFRS in 2005 were also
required to restate their 2004 financial statements from national GAAP to
provide comparable accounting figures. These two sets of financial
statements for 2004 are thus based on identical underlying economic
activities and are fully specified according to two different reporting
regimes. Our sample consists of 145 restatements from NGAAP to IFRS for
firms listed on the Oslo Stock Exchange in Norway. We test whether the IFRS
accounting figures correlate more strongly with stock market values than
the corresponding NGAAP figures. We find little evidence of increased
value-relevance after adopting IFRS when comparing and evaluating the two
regimes unconditionally. On the other hand, when evaluating the change in
the accounting figures from NGAAP to IFRS, we find evidence that the
reconcilement adjustments to IFRS are marginally value-relevant due to
increased relevance of the balance sheet and the normalized net operating
income. By weighting our sample by firm size, intangible asset intensity
and profitability, we learn that the increased value-relevance of the net
operating income stems from different reporting of intangible assets. Since
more intangible assets are capitalized according to IFRS than NGAAP, our
finding is consistent with the view that capitalizing intangible assets is
more value-relevant than expensing them as incurred or through goodwill
amortization.
Keywords: Value-relevance of reporting standards; IFRS versus NGAAP; accounting harmonization; balance sheet-oriented conceptual frameworks versus earningsoriented conceptual frameworks; (follow links to similar papers)
JEL-Codes: M41; (follow links to similar papers)
52 pages, October 17, 2008
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