Uniform Accounting Regimes and Managerial Learning from Stock Prices

Date
2021
Authors
Harré, Simon
Novotny-Farkas, Zoltán
Renders, Annelies
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Abstract
We investigate whether the introduction of IFRS and associated enforcement changes influence managerial learning from stock prices (proxied by revelatory price efficiency (RPE)), particularly for high-growth firms. The introduction of IFRS creates a more uniform accounting regime across different countries. Uniform accounting regimes reduce the ability of managers of high-growth firms to provide more precise information to investors. This in turn lowers the ability of informed investors to incorporate private information about growth opportunities into the stock price. As a result, managers of high-growth firms learn less from stock prices after the introduction of IFRS. Furthermore, we expect that a strong enforcement enhances this effect, as it improves compliance with IFRS, resulting in even lower precision of financial information for high-growth firms. Our findings are consistent with these predictions.
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Keywords
IFRS, accounting standards, financial reporting enforcement, managerial learning from stock prices, unintended consequences
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