Impact of International Financial Reporting Standards on Stock Price Synchronicity for Asian Markets

Abstract

Stock price synchronicity since the adoption of International Financial Reporting Standards (IFRS) has been significant due to its strong relationship with the economic development and capital market stability of a country. Using data from 2006–2011, the study examines whether the mandatory adoption of IFRS reduces stock price synchronicity in the Asian context. The study utilizes a sample of 1,800 firm-year observations for firms in four Asian markets—China, Hong Kong, Israel, and the Philippines—where IFRS have been mandatory since 2009. The empirical model, relating to stock price synchronicity with the adoption of IFRS, and other firm-specific control variables were analysed using both univariate and multivariate techniques. Different types of panel data estimates were used and compared so as to interpret the results with the best-suited parameters for different data sets for different markets. The empirical results support the argument that, for all four markets considered, IFRS adoption improves the information environment through the capitalization of firm-specific information into stock prices, thereby reducing the stock price synchronicity. Along with IFRS adoption, other firm-specific control variables are found to have significant influence on stock price synchronicity, such as cross-listings in foreign stock exchanges in China and Philippines, the Herfindahl index in Hong Kong, and the percentage of foreign sales in Israel. Keywords: International Financial Reporting Standards, Stock Price Synchronicity, Information Environment, Mandatory Adoption of IFRS, Asian Markets To cite this document: Archana Patro and V. K. GUPTA, "Impact of International Financial Reporting Standards on Stock Price Synchronicity for Asian Markets", Contemporary Management Research, Vol.12, No.1, pp. 61-88, 2016. Permanent link to this document: http://dx.doi.org/10.7903/cmr.14160