Do IFRS Disclosure Requirements Reduce the Cost of Equity Capital? Evidence from European Firms

Abstract

This study analyzes the impact of adopting International Financial Reporting Standards (IFRS) on the cost of equity capital for firms listed on STOXX Europe 600 using a sample of 9773 firm-year observations between 1994 and 2022. We estimate the cost of equity capital using the modified price–earnings–growth ratio model and employ the GMM system to investigate the effect of IFRS Standards on the cost of equity capital. Our results indicate that IFRS adoption reduces firms’ cost of equity capital. We performed various sensitivity analyses to ensure the reliability of our results. Overall, this study contributes to the extant literature on the cost of equity capital implications of IFRS adoption and provides valuable insights for investors, regulators, and policymakers.