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Book Values, Cost of Equity Capital and Information Content of Earnings Announcements for European Companies Voluntarily Reporting under IFRS
Jenice Prather - Kinsey,
University Of Missouri
Eva K Jermakowicz, Tennessee State University
Thierry Vongphanith, Brown Brothers Harriman & Co
ABSTRACT. We examine the implementation of International Financial Reporting Standards (IFRS) for European firms voluntarily reporting under IFRS during 2000-2004. Tests were conducted on the value relevance of earnings, information content of earnings announcements (using a 3-day window), and cost of equity capital. We compared financial statements for firms that adopted IFRS (sample) to a matched group of firms that reported using domestic GAAP (control). Overall, our findings reveal that European firms adopting IFRS do not experience cost of equity capital lower than the control group. We also found that value relevance of earnings and book values of equity explain market values in the control and sample group, and that earnings announcements have information content for both control and sample groups. We state these findings with caution as the control group is dominated by U.K firms (33%), and the sample group is dominated by German (37%) and Swiss (33%) firms.
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