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Comparative evidence on the value relevance of IFRS-based accounting information in Germany and the UK

Ashraf Elbakry, Jacinta C. Nwachukwu, Hussein A. Abdou, Tamer Elshandidy

Journal of International Accounting, Auditing and Taxation, Volume: 28, Pages: 10 - 30

Swansea University Author: Ashraf Elbakry

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DOI (Published version): 10.1016/j.intaccaudtax.2016.12.002

Abstract

This paper uses panel cointegration with a corresponding vector error correction model (VECM) to investigate the changes in the value relevance of accounting information before and after the mandatory adoption of IFRS in Germany and the UK under three different valuation models. First, a basic Ohlso...

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Published in: Journal of International Accounting, Auditing and Taxation
ISSN: 1061-9518
Published: Elsevier BV 2017
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URI: https://cronfa.swan.ac.uk/Record/cronfa43522
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spelling 2020-07-25T18:24:35.4572706 v2 43522 2018-08-19 Comparative evidence on the value relevance of IFRS-based accounting information in Germany and the UK 8bf69f4a526a23f398ab8a6f8b134803 Ashraf Elbakry Ashraf Elbakry true false 2018-08-19 CBAE This paper uses panel cointegration with a corresponding vector error correction model (VECM) to investigate the changes in the value relevance of accounting information before and after the mandatory adoption of IFRS in Germany and the UK under three different valuation models. First, a basic Ohlson model, where our results indicate that despite the value relevance of the book values of equity has declined, it has been replaced by the increasing prominence of earnings in both Germany and the UK after the switch to the IFRS. Second, a modified model, which shows that the incremental value relevance of both earnings and book values are considerably higher in the long term for firms in the UK than in Germany. Third, a simultaneous addition of accounting and macroeconomic variables in an extended model, which indicates a significant rise in the relative predictive power of the book value of equity in the UK compared with the more noticeable impact on the value relevance of earnings in Germany. Collectively, the results of these models indicate that: (i) the explanatory power of linear equity valuation models is higher in UK than in the Germany, (ii) a long-run Granger-causal relationship exists between accounting variables and share prices in common law countries like the UK. Nevertheless, the implications of our findings lie in the knowledge that the potential costs of switching to the IFRS is completely nullified within three years by the benefits arising from a reduction in information asymmetry and earning mismanagement among firms which are listed on the stock exchanges of both common law and code law-based EU countries. Journal Article Journal of International Accounting, Auditing and Taxation 28 10 30 Elsevier BV 1061-9518 Modified Ohlson model; Value relevance; IFRS; Germany-GAAP; UK-GAAP; Cointegration; Vector error correction model 1 1 2017 2017-01-01 10.1016/j.intaccaudtax.2016.12.002 COLLEGE NANME Management School COLLEGE CODE CBAE Swansea University 2020-07-25T18:24:35.4572706 2018-08-19T14:02:50.8994257 Faculty of Humanities and Social Sciences School of Management - Accounting and Finance Ashraf Elbakry 1 Jacinta C. Nwachukwu 2 Hussein A. Abdou 3 Tamer Elshandidy 4 0043522-19082018141054.pdf Valuerelevancepaper2017.pdf 2018-08-19T14:10:54.1000000 Output 772483 application/pdf Version of Record true Released under the terms of a Creative Commons Attribution License (CC-BY). true eng https://creativecommons.org/licenses/by/4.0/
title Comparative evidence on the value relevance of IFRS-based accounting information in Germany and the UK
spellingShingle Comparative evidence on the value relevance of IFRS-based accounting information in Germany and the UK
Ashraf Elbakry
title_short Comparative evidence on the value relevance of IFRS-based accounting information in Germany and the UK
title_full Comparative evidence on the value relevance of IFRS-based accounting information in Germany and the UK
title_fullStr Comparative evidence on the value relevance of IFRS-based accounting information in Germany and the UK
title_full_unstemmed Comparative evidence on the value relevance of IFRS-based accounting information in Germany and the UK
title_sort Comparative evidence on the value relevance of IFRS-based accounting information in Germany and the UK
author_id_str_mv 8bf69f4a526a23f398ab8a6f8b134803
author_id_fullname_str_mv 8bf69f4a526a23f398ab8a6f8b134803_***_Ashraf Elbakry
author Ashraf Elbakry
author2 Ashraf Elbakry
Jacinta C. Nwachukwu
Hussein A. Abdou
Tamer Elshandidy
format Journal article
container_title Journal of International Accounting, Auditing and Taxation
container_volume 28
container_start_page 10
publishDate 2017
institution Swansea University
issn 1061-9518
doi_str_mv 10.1016/j.intaccaudtax.2016.12.002
publisher Elsevier BV
college_str Faculty of Humanities and Social Sciences
hierarchytype
hierarchy_top_id facultyofhumanitiesandsocialsciences
hierarchy_top_title Faculty of Humanities and Social Sciences
hierarchy_parent_id facultyofhumanitiesandsocialsciences
hierarchy_parent_title Faculty of Humanities and Social Sciences
department_str School of Management - Accounting and Finance{{{_:::_}}}Faculty of Humanities and Social Sciences{{{_:::_}}}School of Management - Accounting and Finance
document_store_str 1
active_str 0
description This paper uses panel cointegration with a corresponding vector error correction model (VECM) to investigate the changes in the value relevance of accounting information before and after the mandatory adoption of IFRS in Germany and the UK under three different valuation models. First, a basic Ohlson model, where our results indicate that despite the value relevance of the book values of equity has declined, it has been replaced by the increasing prominence of earnings in both Germany and the UK after the switch to the IFRS. Second, a modified model, which shows that the incremental value relevance of both earnings and book values are considerably higher in the long term for firms in the UK than in Germany. Third, a simultaneous addition of accounting and macroeconomic variables in an extended model, which indicates a significant rise in the relative predictive power of the book value of equity in the UK compared with the more noticeable impact on the value relevance of earnings in Germany. Collectively, the results of these models indicate that: (i) the explanatory power of linear equity valuation models is higher in UK than in the Germany, (ii) a long-run Granger-causal relationship exists between accounting variables and share prices in common law countries like the UK. Nevertheless, the implications of our findings lie in the knowledge that the potential costs of switching to the IFRS is completely nullified within three years by the benefits arising from a reduction in information asymmetry and earning mismanagement among firms which are listed on the stock exchanges of both common law and code law-based EU countries.
published_date 2017-01-01T06:27:55Z
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