Reply to the Discussion Note on the “The Effect of IFRS Adoption Conditional Upon the Level of Pre-adoption Divergence”

Pathak (2014) has raised both conceptual and methodological questions about Cai, Rahman, and Courtenay (2014). In this reply, we attempt to address the questions. The discussion arising from these questions suggests that IFRS adoption and the implications of IFRS are complex issues. Cai et al. (2014) try to illustrate that IFRS adoption is not a single-step solution. It has various stages. Some countries take gradual steps towards IFRS adoption and others embrace IFRS in one big step. Cai et al. (2014) also explain that IFRS adoption is associated with other institutional arrangements within a country. The issue of the manner in which IFRS is adopted across countries needs further investigation to better assess the country level impediments of IFRS adoption and how IFRS adoption affects market efficiency.