Mandatory IFRS enforcement and value relevance of accounting information in India

Abstract

This study investigates the influence of IFRS enforcement on the explanatory power of earnings and book value on the market price in an emerging economy, India over five years that is two years before mandatory IFRS enforcement for 2014-2015 and three years after IFRS enforcement for 2016- 2018. Total 3470 firm-year observations were examined by assembling data from the BSE website and the annual reports of the firms for this purpose. The findings of the study conclude that the financial reporting environment has improved after introducing the IFRS, which was reflected through a strong and significant association between market price and its two dominating variables earnings and book values. However, the findings also suggest that earnings have been stronger and more significant predictors of market price post-IFRS enforcement than book values, which showed a negative association with market price and declined after IFRS enforcement. The study also suffers from diverse constraints similar to previous studies such as limited data sets and years coupled with only two variables and suggests future scope for research in diverse angles where researchers can employ the return model, and add more control variables such as cash flows, leverage, size, growth...