Reporting practice and economic consequences
6. Analysis of economic consequences
6Analysis of economic consequences
This section presents the methodological approach used to gauge the capital market effects of IFRS 8’s adoption. The analysis comprises three sub-analyses from the perspectives of investors, companies and financial analysts. After some preliminary considerations, the general research design as well as the main variables for each of the sub-analyses are introduced.
Making causal claims about the impact of financial disclosures, in particular the adoption of a new accounting standard, on capital markets is very challenging. In general, researchers face three problems.
First, it is difficult to rule out any confounding time effects that may impact the measures used to gauge capital market implications. Usually, accounting standards come into effect for all firms in a jurisdiction at the same point in time. Any changes that happen concurrently, either accounting-related or general economic developments, may also impact the measures used to capture capital market effects. Hence, it is generally impossible to solely attribute potential reactions by the capital market to the adoption of the accounting standard itself.
Second and in a similar vein, it is difficult to narrow down the channel of financial disclosures that actually causes the capital market effects. This is particularly the case when discretion or voluntary disclosure decisions are involved. For instance, a company that decides to be more transparent and forthcoming in their segment report can simultaneously improve several other disclosures as part of a general...
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