Product market effects of IFRS adoption |
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Authors: | Jimmy F Downes Vanessa Flagmeier David Godsell |
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Institution: | 1. University of Nebraska-Lincoln, College of Business, P.O. Box 880488, Lincoln, NE 68588-0488, USA;2. University of Paderborn, Chair for Taxation and Accounting, Warburger Str. 100, 33098 Paderborn, Germany;3. University of Illinois at Urbana-Champaign, College of Business, Wohlers Hall Suite 396, 1206 South Sixth Street, Champaign, IL 61820, USA |
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Abstract: | Prior literature finds that International Financial Reporting Standards (IFRS) adopters enjoy lower financing costs subsequent to IFRS adoption. We predict and find that mandatory IFRS adopters exploit lower financing costs to increase market share vis-à-vis non-adopters. This effect is robust across several different model specifications in a sample capturing the universe of public and private firms in the EU, in a matched sample of public and private firms, and in a public firm sample comparing mandatory and voluntary IFRS adopters. We further find that IFRS is associated with an increase (decrease) in industry sales concentration (competition), consistent with large public firms increasing market share. In supplemental analyses, we find that mandatory adopters issue more equity and debt after IFRS adoption and that larger market share gains accrue to those mandatory IFRS adopters that issue more equity and debt after IFRS adoption. Overall, we provide evidence of unintended product market consequences of IFRS adoption. |
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Keywords: | D43 G32 G38 Financial reporting regulation Product market competition |
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