Does Mandatory Ifrs Adoption and Macroeconomic Factors Affect Cost of Equity Capital? Empirical Evidence From South African Listed Firms

Abstract

Purpose: This paper investigates the collaboration of International Financial Reporting Standards (IFRS) adopted and macroeconomic variables interaction with information asymmetry, analysts following and managerial opportunism affecting the cost of equity capital, and also influence investor’s decision taking on companies in South Africa. Design/Approach: A sample of 49 listed Johannesburg mining and manufacturing firms was extracted from archival database of INET BFA/IRESS SA, Morningstar, and Anupedia. A leverage fixed effects panel data set of firms from 2001 to 2014 was examined, which shows that Breusch-Lagrange Multiplier tests and the test of over-identifying restrictions used, form the basis of the content analysis of the most recent IFRS effect after mandatory adoption. We used a hand-collected dataset between 2000 and 2015. Findings: Our findings suggest that a significant association is found between IFRS and its interactions with managerial opportunism and integrity but with a reasonable statistical effect.  However, the IFRS adoption effect on the cost of equity capital of South African firms’ has no significant effect. Practical implications: This study reveals that most firms report more, the credibility of annual financial statements which may not be sufficient because of the qualitative data for an assessment of managerial opportunism, information asymmetry and analysts following.  Of such myopia of company managers, their reputation causes agency problems and as a result, shareholders interest is mainly focused on improving reporting standards Originality: The research considers dual harmonizing facets: first, that the interaction with IFRS adoption and economic factors impact on the cost of equity capital may be so pathetic and obvious; and second, that IFRS moderation impacts on the cost of equity capital in Sub- Saharan African. This finding should be meaningful to managers, analysts, policymakers, and supervisory bodies in nations with similar capital structure decisions and socioeconomic systems.