Buradasınız

Anasayfa » Content

Mandatory IFRS adoption and the cost of equity capital: Evidence from Spanish firms

Journal Name:

  • Intangible Capital

Publication Year:

  • 2014
DOI: 
http://dx.doi.org/10.3926/ic.491

Key Words:

Author NameUniversity of Author
Abstract (2. Language): 
Purpose: The main objective of this paper analyses the effects of mandatory International Financial Reporting Standards (IFRS) adoption by Spanish firms in 2005 on the cost of equity capital. Design/methodology/approach: Using a sample of listed Spanish companies during the 1999 to 2009 period and a country-level focused analysis. To achieve our objective we relied on OLS regression analysis and estimate the dependent variable – the cost of equity – by using the proxy suggested in Easton (2004). Findings: We find evidence that, unlike previous studies, Spanish listed companies show a significant reduction in their cost of equity capital after the mandatory adoption of IFRS in 2005, after controlling by a set of firm-risk and market variables. According to our results, increased financial disclosure and enhanced information comparability, along with changes in legal and institutional enforcement, seem to have a joint effect on the cost of capital, leading to a large decrease in expected equity returns. Research limitations/implications: The main limitation of the study is that the sample represents just one country.Practical implications: The findings of the study may have implications for the firms’ management staff, as they reveal what information determines the cost of equity capital. The systematic risk and the leverage affect positively the cost of stocks and therefore their market value. The results are consistent with the financial principle establishing that the higher risk and the higher leverage, the higher cost of capital. Originality/value: As a result of the conducted research, one is able to figure out which stock-return variables should be observed to anticipate the change of a company’s cost of capital.
Bookmark/Search this post with
FULL TEXT (PDF): 
PDF icon arastirmax-mandatory-ifrs-adoption-and-cost-equity-capital-evidence-spanish-firms.pdf
  • 3
562
583
  • English

JEL Codes:

REFERENCES

References: 

AMIHUD, Y.; MENDELSON, H. (1986). Asset Pricing and the Bid-Ask Spread. Journal of
Financial Economics, 17: 223–249. http://dx.doi.org/10.1016/0304-405X(86)90065-6
ARMSTRONG, CH.S.; BARTH, M.E.; JAGOLINZER, A.D.; RIEDL, E.J. (2010). Market Reaction to
the Adoption of IFRS in Europe. The Accounting Review, 85(1): 31-61.
http://dx.doi.org/10.2308/accr.2010.85.1.31
ARTIACH, T.C.; CLARKSON, P.M. (2011). Disclosures, conservatism and the cost of equity
capital: A review of the foundation literature. Accounting and Finances, 51(1): 2-49.
http://dx.doi.org/10.1111/j.1467-629X.2010.00387.x
BARTH, M; LANDSMAN, W.; LANG, M. (2008). International Accounting Standards and
accounting quality. Journal of Accounting Research, 46(3): 467–498.
http://dx.doi.org/10.1111/j.1475-679X.2008.00287.x
BERK, J. (1995). A critique of size-related anomalies. Review of Financial Studies, 8(2)
(Summer): 275-286. http://dx.doi.org/10.1093/rfs/8.2.275
BERTOMEU, J.; BEYER, A.; DYE, R.A. (2011). Capital Structure Cost of Capital and Voluntary
Disclosures. The Accounting Review, 86(3): 857-886. http://dx.doi.org/10.2308/accr.00000037
BOTOSAN, C.; PLUMLEE, M.A. (2002). A re-examination of disclosure level and the expected
cost of equity capital. Journal of Accounting Research, 40(1): 21–40.
http://dx.doi.org/10.1111/1475-679X.00037
-579-
Intangible Capital – http://dx.doi.org/10.3926/ic.491
BOTOSAN, C.A.; PLUMLEE, M.A.; WEN, H. (2011). The Relation between Expected Returns,
Realized Returns, and Firm Risk Characteristics. Contemporary Accounting Research, 28(4):
1085-1122. http://dx.doi.org/10.1111/j.1911-3846.2011.01096.x
BURGSTAHLER, D.; HAIL, L.; LEUZ, C. (2006). The importance of reporting incentives:
Earnings management in European private and public firms. The Accounting Review, 81(5):
983–1016. http://dx.doi.org/10.2308/accr.2006.81.5.983
CLARKSON, P.; GUEDES, J.; THOMPSON, R. (1996). On the Diversification, Observability, and
Measurement of Estimation Risk. Journal of Financial and Quantitative Analysis, 31(1):
69-84. http://dx.doi.org/10.2307/2331387
CHRISTENSEN, P.O.; DE LA ROSA, L.E.; FELTHAM, G.A. (2010). Information and the Cost of
Capital: An Ex Ante Perspective. The Accounting Review, 85(3): 817-848.
http://dx.doi.org/10.2308/accr.2010.85.3.817
CHRISTENSEN, H.B.; HAIL, L.; LEUZ, C. (2013). Mandatory IFRS Reporting and Changes in
Enforcement. Journal of Accounting and Economics, 56(2-3): 147-177.
http://dx.doi.org/10.1016/j.jacceco.2013.10.007
COVRIG, V.; DEFOND, M.; HUNG, M. (2007). Home bias, foreign mutual fund holdings, and the
voluntary adoption of International Accounting Standards. Journal of Accounting Research,
45(1): 41–70. http://dx.doi.org/10.1111/j.1475-679X.2007.00226.x
DAMODARAN, A. (2010). Applied Corporate Finance. USA: John Wiley & Sons.
DASKE, H. (2006). Economic benefits of adopting IFRS or US-GAAP—Have the expected cost of
equity capital really decreased?. Journal of Business Finance and Accounting, 33(3–4):
329-373. http://dx.doi.org/10.1111/j.1468-5957.2006.00611.x
DASKE, H.; HAIL, L.; LEUZ, C.; VERDI, R. (2008). Mandatory IFRS Reporting around the
World: Early Evidence on the Economic Consequences. Journal of Accounting Research,
46(5): 1085-1142.
DIAMOND, D.; VERRECCHIA, R. (1991). Disclosure, Liquidity and the Cost of Capital. Journal
of Finance, 46: 1325–1359. http://dx.doi.org/10.1111/j.1540-6261.1991.tb04620.x
EASLEY, D.; O’HARA, M. (2004). Information and the cost of capital. The Journal of Finance,
59(4): 1553–1583. http://dx.doi.org/10.1111/j.1540-6261.2004.00672.x
EASTON, P. (2004). PE ratios, PEG ratios and estimating the implied expected rate of return on
equity capital. The accounting Review, 79(1): 73-95. http://dx.doi.org/10.2308/accr.2004.79.1.73
-580-
Intangible Capital – http://dx.doi.org/10.3926/ic.491
ESPINOSA, M.; TROMBETTA, M. (2007). Disclosure Interactions and the Cost of Equity Capital:
Evidence from the Spanish Continuous Market. Journal of Business Finance & Accounting,
34(9): 1371-1392. http://dx.doi.org/10.1111/j.1468-5957.2007.02064.x
FAMA, E.; FRENCH, K. (1997). Industry costs of equity. Journal of Financial Economics, 43(2):
153–194. http://dx.doi.org/10.1016/S0304-405X(96)00896-3
FRANCIS, J.; KHURANA, I.; PEREIRA, R. (2005). Disclosure incentives and effects on cost of
capital around the world. The Accounting Review, 80(4): 1125–1162.
http://dx.doi.org/10.2308/accr.2005.80.4.1125
GOSNELL, T.; NEJADMALAYERI, A. (2010). Macroeconomic News and Risk Factor Innovations.
Managerial Finance, 36(7): 566-582. http://dx.doi.org/10.1108/03074351011050316
HAIL, L. (2002). The Impact of Voluntary Corporate Disclosures of the Ex-ante Cost of Capital
for Swiss Firms. European Accounting Review, 11(4): 741–773.
http://dx.doi.org/10.1080/0963818022000001109
HAIL, L.; LEUZ, C. (2006). International Differences in Cost of Equity Capital: Do Legal
Institutions and Securities Regulation Matter?. Journal of Accounting Research, 44(3):
485-531. http://dx.doi.org/10.1111/j.1475-679X.2006.00209.x
HAIL, L.; LEUZ, C.; WYSOCKI, P. (2010). Global accounting convergence and the potential
adoption of IFRS by the U.S. (part I): conceptual underpinnings and economic analysis.
Accounting Horizons, 24: 355–394. http://dx.doi.org/10.2308/acch.2010.24.3.355
HUGHES, J.; LIU, J.; LIU, J. (2007). Information asymmetry, diversification, and cost of
Capital. The Accounting Review, 82(3): 705–729. http://dx.doi.org/10.2308/accr.2007.82.3.705
KARAMANOU, I.; NISHIOTIS, G.P. (2009). Disclosure and the Cost of Capital: Evidence from
the Market’s Reactions to Firm Voluntary Adoption of IAS. Journal of Business Finance &
Accounting, 36(7): 793-821. http://dx.doi.org/10.1111/j.1468-5957.2009.02154.x
KOFMAN, P.; MARTENS, M. (1997). Interaction between stock markets: an analysis of the
common trading hours at the London and New York stock exchange. Journal of International
Money and Finance, 16(3): 387-414. http://dx.doi.org/10.1016/S0261-5606(97)00004-1
LAMBERT, R.; LEUZ, C.; VERRECCHIA, R. (2007). Accounting information, disclosure, and the
cost of capital. Journal of Accounting Research, 45(2): 385–420.
http://dx.doi.org/10.1111/j.1475-679X.2007.00238.x
LEE, H-Y; MANDE, V.; SOON, M. (2009). The Effect of the Private Securities Litigation Reform
Act of 1995 on the Cost of Equity Capital. Quarterly Journal of Finance and Accounting,
48(2): 85-106.
-581-
Intangible Capital – http://dx.doi.org/10.3926/ic.491
LEUZ, C.; VERRECCHIA, R. (2000). The economic consequences of increased disclosure.
Journal of Accounting Research, 38 (Supplement): 91–124. http://dx.doi.org/10.2307/2672910
LI, S. (2010). Does Mandatory Adoption of International Financial Reporting Standards in the
European Union Reduce the Cost of Equity Capital?. The Accounting Review, 85(2): 607-
636. http://dx.doi.org/10.2308/accr.2010.85.2.607
MUIÑO, F.; TROMBETTA, M. (2009). Does graph disclosure bias reduce the cost of equity
capital?. Accounting and Business Research, 39(2): 83-102.
REVERTE, C. (2009). Do better governed firms enjoy a lower cost of equity capital? Evidence
from Spanish firms. Corporate Governance, 9(2): 133-145.
http://dx.doi.org/10.1108/14720700910946587
SHARPE, W. (1964). Capital asset price: a theory of market equilibrium under conditions of
risk. Journal of Finance, 19(3): 425-442.
VASSALOU, M. (2003). News related to future GDP growth as a risk factor in equity returns.
Journal of Financial Economics, 68(1): 47-73. http://dx.doi.org/10.1016/S0304-405X(02)00248-9

Thank you for copying data from http://www.arastirmax.com