THE EFFECT OF ADOPTION OF IFRS BASED ACCOUNTING STANDARDS: INDIAN EVIDENCES OF ENHANCED VALUE RELEVANCE AND UNIFORMITY

Keywords: Value relevance, EPS, BVPS, IND-AS, Fixed Effect, Random Effect, OLS.

Abstract

This study examines how relevant the accounting information was for the value of the firm prior to 2016, when India had the indigenous Accounting Standards, and after 2016 when India adopted new accounting standards known as IND-AS, which were the convergence standards mostly in line with IFRS. As an extension to this, we have performed another round of analysis to observe whether the enhanced value relevance is symmetrically distributed among big and small firms. We have used the price regression model of (Barth et al, 2008) on 1770 firm-years data of Indian firms and applied panel data analysis. We have found 66% adjusted R2 under OLS method for the period prior to 2016 and 78% for the post-change period. Further to this, big and small firms, in the new regime, have shown 84% and 89% adjusted R2. From the results, we have found substantial improvement in value relevance of accounting information in the IND-AS period. We have also found that the enhanced value relevance is uniformly distributed across firms irrespective of firm-size.

JEL Classification Codes: M41.

Author Biographies

Somnath Banerjee, St. Xavier’s University, India

Associate Professor, Commerce & Management, St. Xavier’s University, Kolkata, India

Satyajit Dhar, University of Kalyani, India

Professor, Department of Business Administration, University of Kalyani, West Bengal, India

Anirban Dutta, NIT, India

Assistant Professor, Department of HSS, NIT, Agartal, India

References

Alali, F., & Foote, P.S. (2012). The value relevance of international financial reporting standards: empirical evidence in an emerging market. International Journal of Accounting, 47(1), 85-112.

Avwokeni, J. (2018). On the value relevance argument: do the market participants pay a premium on future prospects of a firm?. Journal of Financial Accounting and Reporting, 16(4), 660-674.

Barth, M., Landsman, W.R., & Lang, M. (2008). International accounting standards and accounting quality. Journal of Accounting Research, 46, 467-498.

Bepari, M.K. (2015). Relative and incremental value relevance of book value and earnings during the global financial crisis. International Journal of Commerce and Management, 25(4), 531-556.

Clarkson, P., Hanna, J. D., Richardson, G. D., & Thompson, R. (2011). The impact of IFRS adoption on value relevance of book value and earnings. Journal of Contemporary Accounting and Economics, 7(1), 1-17.

Cordazzo, M., & Rossi, P. (2019). The influence of IFRS mandatory adoption on value relevance of intangible assets in Italy. Journal of Applied Accounting Research, 21(3), 415-436.

Filip, A., & Raffournier, B. (2010). Value relevance of earnings in a transition economy: the case of Romania. International Journal of Accounting, 45(1), 77-103.

Gjerde, O., Knivsla, K., & Saettem, F. (2011). The value relevance of financial reporting in Norway, 1965-2004. The Scandinavian Journal of Management, 27(1), 113-128.

Kadri, M. H., Aziz, R. A., & Ibrahim, M. K. (2009). Value relevance of book value and earnings: evidence from two different financial reporting regimes. Journal of Financial Reporting and Accounting, 7(1), 1-16.

Harakeh, M., Lee, E., & Walker, M. (2018). The effect of information shock on dividend pay out and dividend value relevance. International Review of Financial Analysis., 61, 82-96, https://doi.org/10.1016/j.irfa.2018.10.009

Joshi, M., Yapa, P.W.S., & Kraal, D. (2016), "IFRS adoption in ASEAN countries: Perceptions of professional accountants from Singapore, Malaysia and Indonesia", International Journal of Managerial Finance, 12(2), 211-240. https://doi.org/10.1108/IJMF-04-2

Kim, S., & Ryu, H. (2018). The impact of mandatory IFRS adoption on capital markets: evidence from Korea. International Journal of Accounting and Information Management, 26(1), 38-58.

Kumari, P., & Mishra, C. S. (2020). Value relevance of aggregated and disaggregated earnings in India: significance of intangible intensity. Journal of Accounting, Auditing and Taxation, 39. https://doi.org/10.1016/j.intaccaudtax.2020.100321.

Lee, H., & Lee, H. (2013). Do Big 4 audit firms improve the value relevance of earnings and equity?. Managerial Auditing Journal, 28(7), 628-646.

Okafor, O.N., Anderson, M., & Warsame, H. (2016). IFRS and value relevance: evidence based on Canadian adoption. International Journal of Managerial Finance, 12(2), 136-160.

Onali, E., Ginesti, G., & Vasilakis, C. (2017). How should we estimate value relevance models: insight from European data. The British Accounting Review, 49(5), 460-473.

Phan, D., Joshi, M., & Mascitelli, B. (2018). What influences the willingness of Vietnamese accountants to adopt International Financial Reporting Standards (IFRS) by 2025?. Asian Review of Accounting, 26(2), 225-247. https://doi.org/10.1108/ARA-03-2017-0052

Sharma, S., Joshi, M., & Kansal, M. (2017). IFRS adoption challenges in developing economies: an Indian perspective. Managerial Auditing Journal, 32(4/5), 406-426. https://doi.org/10.1108/MAJ-05-2016-1374

Thijssen, M. W. P., & Latridis, G. E. (2016). Conditional conservatism and value relevance of financial reporting: a study in view of converging accounting standards. Journal of Multinational Financial Management, 37-38, 48-70.

Veith, S., & Werner, J. R. (2014). Comparative value relevance studies: country differences vs. Specification effects. The International Journal of Accounting, 49(3), 301-330.
Published
2021-09-23
How to Cite
Banerjee, S., Dhar, S., & Dutta, A. (2021). THE EFFECT OF ADOPTION OF IFRS BASED ACCOUNTING STANDARDS: INDIAN EVIDENCES OF ENHANCED VALUE RELEVANCE AND UNIFORMITY. International Journal of Accounting & Finance Review, 8(1), 6-14. https://doi.org/10.46281/ijafr.v8i1.1353
Section
Regular Research Article/ Short Communication Article