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The International Journal of Accounting 48 (2013) 173 – 217

A Meta-analysis of IFRS Adoption Effects


Kamran Ahmed a,⁎, Keryn Chalmers b , Hichem Khlif c
a
Department of Accounting, La Trobe University, Melbourne, Victoria 3086, Australia
b
Department of Accounting and Finance, Monash University, Australia
c
University of Economics and Management of Mahdia, University of Monastir, Tunisia

Received 25 September 2012

Abstract

The adoption of IFRS around the globe has stimulated empirical research that investigates the
financial reporting and capital market effects associated with an accounting regime change. These
studies differ in their analysis period, jurisdictional setting, and research design, and they report
varying findings. We conduct a meta-analysis of IFRS adoption studies investigating financial
reporting effects, namely value relevance and earnings transparency in the form of discretionary
accruals, as well as capital market effects, specifically the quality of analysts' earnings forecasts. Our
findings show that the value relevance of book value of equity has not increased post-IFRS adoption,
whereas the value relevance of earnings has generally increased when assessed using price models.
Our results also suggest that discretionary accruals have not reduced, but analysts' forecast accuracy
has increased significantly post-IFRS adoption. Our findings are not affected materially after
controlling for moderating factors including jurisdictional differences such as legal origin, the
accounting and auditing enforcement regime, and differences between domestic GAAP and IFRS.
However, these associations are moderated by the model used for empirical investigation of value
relevance and discretionary accrual effects; they are also moderated by the adoption being voluntary
or mandatory. The findings provide evidence to inform policy assessments and deliberations of the
financial reporting and capital market effects of adopting IFRS.
© 2013 University of Illinois. All rights reserved.

JEL classification: M41


Keywords: Discretionary accruals; Economic consequences; Analysts' forecasts; IFRS; Meta-analysis and
value relevance

⁎ Corresponding author.
E-mail addresses: k.ahmed@latrobe.edu.au (K. Ahmed), keryn.chalmers@monash.edu (K. Chalmers),
hichemkhlif@gmail.com (H. Khlif).
0020-7063/$ - see front matter © 2013 University of Illinois. All rights reserved.
http://dx.doi.org/10.1016/j.intacc.2013.04.002
174 K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217

1. Introduction

High-quality information is paramount for the efficient functioning of equity markets.


In particular, accounting regimes and generally accepted accounting principles play a crucial
role in shaping the preparation and presentation of financial information to external users
who rely on this information for decision-making. Financial information is important for the
investment community, therefore adopting International Financial Reporting Standards
(IFRS) 1 as the basis for the preparation and presentation of financial reports is a significant
public policy decision demanding a cost/benefit analysis. To date, the empirical evidence
on the benefits for investors are mixed (Brown, 2011). The aim of this paper is to present a
meta-analysis of a large collection of papers that investigate the financial reporting and capital
market effects associated with IFRS adoption. 2 Specifically, the broad research question
addressed is: has IFRS adoption increased financial reporting quality and improved analysts'
information environment?
An espoused benefit of IFRS adoption for some jurisdictions is that financial reporting
becomes more transparent because IFRS provides users with additional disclosure requirements
and specifies measurement and recognition rules that directly impact the quality of accounting
numbers (Daske, 2006). For example, Barth, Landsman, and Lang (2008) find that firms
adopting IFRS engage in less earnings management, exhibit more timely loss recognition, and
provide more value relevance of earnings. The authors interpret these findings as evidence of
higher financial reporting quality. Studies have also shown IFRS can enhance analysts'
information environment (Byard, Li, & Yu, 2011; Stecher & Suijs, 2012). It is also noted that
jurisdictional differences influence IFRS implementation, hence the quality of accounting
numbers and the information available to markets (e.g., Ball, 2006; Liao, Sellhorn, & Skaife,
2012; Stecher & Suijs, 2012).
Empirical studies have investigated the value relevance and discretionary accrual effects of
voluntary adoption of IFRS (e.g., Ashbaugh & Pincus, 2001; Harris & Muller, 1999; Hung &
Subramanyam, 2007; Jermakowicz, Prather-Kinsey, & Wulf, 2007; Van Tendeloo &
Vanstraelen, 2005). The regulation passed by the European Parliament and the European
Council of Ministers requiring the adoption of IFRS by all European listed entities, as well as
similar developments in other jurisdictions, spawned further value relevance and discretionary
accrual studies in a mandatory IFRS adoption setting (e.g., Byard et al., 2011; Chalmers,
Clinch, & Godfrey, 2008; Cheong, Kim, & Zurbruegg, 2010; Clarkson, Hanna, Richardson,
& Thompson, 2011; Devalle, Onali, & Magarini, 2010; Goodwin, Ahmed, & Heaney, 2008;
Iatridis, 2010; Zéghal, Chtourou, & Sellami, 2011) as well as the impact on analysts'
information environment (e.g., Chalmers, Clinch, Godfrey, & Wei, 2012; Horton, Serafeim,
& Serafeim, 2012; Jönsson, Jansson, & van Koch, 2012). Voluntary and mandatory IFRS

1
The predecessors to IFRS were International Accounting Standards (IAS). In our study, IFRS referencing
includes IAS.
2
Brüggemann et al. (2012) classify empirical studies of IFRS adoption as financial reporting effect studies
(compliance and accounting choice studies, accounting property studies and value relevance studies), capital market
effect studies (direct and indirect evidence on economic consequences in capital markets) and macroeconomic effect
studies. Consistent with this classification, we explore the financial reporting effects by meta-analyzing value
relevance and discretionary accrual studies, and a capital market effect by meta-analyzing analysts' earnings forecast
accuracy studies.
K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217 175

Table 1
Sample selection criteria.
Number of papers Independent samples
Initial sample 88
Criteria leading to the exclusion of studies
Papers with narrative and descriptive analysis and insufficient 11
data to compute the size effect for meta-analysis
Papers not investigating value relevance, discretionary accruals 20
or analysts' earnings forecast accuracy IFRS adoption effects
Final sample 57
Value relevance studies 30 47
Discretionary accrual studies 13 29
Analysts' earnings forecast accuracy studies 14 20
Total 57 96

adoption effect studies have been conducted in jurisdictions with varying cultural, institutional,
and legislative regimes. These studies have differed in the measurement and modeling of the
financial reporting effect constructs being investigated. The empirical evidence on the financial
reporting and capital market effects is inconsistent and our study synthesizes and reconciles
these findings.
Studies on the economic consequences of IFRS adoption are highly relevant given that
IFRS are increasingly globally accepted. The motivation of our paper is to reconcile the
inconsistent research findings and draw stronger inferences on IFRS adoption effects.
Specifically, we are interested in studies that investigate the association between IFRS adoption
and (1) the value relevance of reported book value of equity and earnings, (2) discretionary
accruals, and (3) analysts' earnings forecast accuracy. 3 Identifying the relevant empirical
studies, we use the approach developed by Rosenthal (1991), Hunter, Schmidt, and Jackson
(1982), and Hunter and Schmidt (2000) and we offer a meta-analysis of these three bodies
of literature to integrate the results, detect the causes of the variability of results across studies,
and draw conclusions to better understand the IFRS adoption effects.
Meta-analysis is a statistical technique allowing researchers to overcome the shortcomings
of the narrative aspects of empirical reviews. It accumulates the statistical findings of related
research in an attempt to make quantitative generalizations and reduce the limited statistical
power of studies with small sample sizes. Further, a properly executed meta-analysis can make
significant contributions to practice and policy as well as to general knowledge by developing
a robust framework of the whole body of research on a given topic (Lipsey & Wilson, 2001).
Despite its popularity in disciplines such as medical research, meta-analysis has not been
extensively used in the accounting literature (Pomeroy & Thornton, 2008) 4 although its use is
increasing. The accounting-related studies applying this methodology meta-analyze selected
positive accounting theory variables (Christie, 1990), the determinants of disclosure level

3
To assess meta-analytically IFRS adoption effects, it is necessary to have a sufficiently large number of studies
that have empirically addressed a particular research question. Our choice of discretionary accrual and value
relevance studies to meta-analyze the financial reporting effects of IFRS adoption, and analysts forecast accuracy
studies to meta-analyze a capital market effect, is influenced by this criterion.
4
See Pomeroy and Thornton (2008) for an overview of meta-analysis contributions to various disciplines.
176 K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217

(Ahmed & Courtis, 1999; Khlif & Souissi, 2010), the effect of corporate governance attributes
on earnings management (García-Meca & Sánchez-Ballesta, 2009; Lin & Hwang, 2010),
board independence, ownership concentration and voluntary disclosure (García-Meca &
Sánchez-Ballesta, 2010), auditors' internal control judgment (Trotman & Wood, 1991), audit
fees and firm specific variables (Hay, Knechel, & Wong, 2006), audit committee independence
and financial reporting quality (Kinney & Martin, 1994; Lin & Hwang, 2010; Pomeroy &
Thornton, 2008), and non-audit fees and financial reporting quality (Habib, 2012). While there
are reviews that summarize and discuss the empirical literature on IFRS adoption consequences
(e.g., Brown, 2011; Brüggemann, Hitz, & Sellhorn, 2012; Houqe, van Kesteren, & Clarkson,
2012; Pope & McLeay, 2011; Soderstrom & Sun, 2007), to the best of our knowledge our
study is the first attempt to summarize, using an accepted statistical methodology, these
consequences. In performing the analysis, we test for moderating effects including jurisdictional
differences, methodological differences, 5 and the mode of IFRS adoption (mandatory or
voluntary) that may explain the inconsistent findings in the literature.
The contributions of our study are threefold. First, we contribute to the debate on IFRS
adoption effects by offering a quantitative generalization drawn from a sample of empirical
studies examining effects of the switch to IFRS. Pope and McLeay (2011) note that the IFRS
adoption effect results from the European Union (E.U.) are “far from uniform”. Brown (2011)
also discusses the mixed evidence and calls for “improved methods to seek them out”. Our
approach complements the narrative reviews on the consequences of IFRS adoption and
responds to the challenge to better understand the array of evidence. Second, we provide
evidence of the factors that are plausible explanations for the divergent results and anomalies
in the extant literature. Our study aggregates the results of prior studies and summarizes the
findings; it thus facilitates theoretical development and provides direction to future empirical
studies. For example, we show how jurisdictional differences, research design, and construct
measurement influence results of IFRS adoption effect studies. Third, our study is a further
demonstration of the applicability and usefulness of the meta-analytic technique for accounting
research.
We find that the value relevance of book value of equity has not increased after IFRS
adoption, whereas the value relevance of earnings has generally increased when assessed
using price models. Further, we find that IFRS adoption is not associated with discretionary
accruals, a construct for earnings management. Finally, our results provide strong support for
the improvement of financial analysts' earnings forecasts in an IFRS regime, suggesting that
analysts' information environment has improved.
Our results are useful to the investment community and accounting standard-setting bodies
and regulators. The decision by various jurisdictions to permit, converge, or adopt IFRS is a
public policy decision that demands an ex post analysis to determine if the perceived benefits are
realized. Our study provides aggregated evidence on the financial reporting and capital market
effects flowing from such a decision and the factors influencing such effects. This informs
deliberations by jurisdictions, such as the U.S., contemplating permitting financial reporting in
accordance with IFRS for domestic issuers and assists regulators in IFRS adopting jurisdictions

5
For example, the use of price versus return models to assess the value relevance of earnings and the model
used by studies to measure discretionary accruals.
K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217 177

to appreciate how their jurisdictional environments are influencing IFRS adoption effects.
Knowledge of such influences assists policy makers and accounting standard setters to
understand the impediments to achieving global financial statement comparability.
The remainder of the paper is structured as follows. In the next section, we present a
narrative review of the literature relevant to our study. This section also develops the
hypotheses to be tested. The IFRS adoption effect studies reviewed, synthesized and
assessed in our study are detailed in Section 3. A discussion of the meta-analytic technique
applied to these studies follows in Section 4. Section 5 presents and analyses the empirical
results of the meta-analysis of the effect of IFRS adoption on the value relevance of
accounting information, discretionary accruals and analysts' earnings forecasts. Section 6
offers conclusions and future research directions.

2. Literature review

The espoused benefits and costs of IFRS adoption are documented in the professional
and academic literature. Benefits cited include reducing information asymmetry, enhancing
capital market efficiency, and greater transparency and consistency across jurisdictions. The
impediments to the realization of such benefits include communication and interpretation
barriers, permissible alternative accounting treatments and preparer incentives, and a desire to
maintain sovereignty of accounting standard setting and differences in institutional and legal
regimes that impact IFRS compliance and enforcement. Ball (2006) argues that the pros and
cons are conjectural with IFRS being a “veneer of uniformity” that may not enhance financial
reporting comparability. This view is supported by the mixed empirical findings summarized
in review papers (e.g., Brown, 2011; Pope & McLeay, 2011). This study meta-analyzes three
bodies of empirical literature on IFRS adoption effects — value relevance, discretionary
accruals and analysts' earnings forecast accuracy studies — and presents a review of this
literature.

2.1. IFRS adoption and value relevance studies

The empirical assessments of financial reporting effects associated with IFRS adoption
include a body of literature that examines changes in the value relevance of earnings and
book value of equity as the financial reporting quality attribute. Such literature offers
fruitful insights on the implications for the association between accounting information and
share prices when the basis for the preparation and presentation of accounting information
changes (Barth, Beaver, & Landsman, 2001). If IFRS recognition, measurement and
disclosure requirements produce information that is more relevant and faithfully represented
relative to domestic GAAP, the value relevance of the accounting information should increase
with its adoption. To test this espoused benefit of IFRS, empirical studies using price and
return models have been undertaken in different contexts, jurisdictions, and time periods with
varying results.
Value relevance studies of voluntary IFRS adoption report mixed findings. For
example, studies of the change in value relevance for German firms electing to use IFRS as
the basis for financial reporting rather than German GAAP (e.g., Bartov, Goldberg, & Kim,
2005; Hung & Subramanyam, 2007; Jermakowicz et al., 2007) report evidence of
178 K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217

declining, increasing, and no change in the relevance of earnings associated with voluntary
IFRS adoption. Using a sample of firms listed on the Helsinki Stock Exchange between
1984 and 1992, Kinnunen, Niskanen, and Kasanen (2000) report a significant decrease in
the correlation between accounting information and share price after voluntary adoption. In
contrast, Bartov et al. (2005) test such an association for German firms that voluntarily
adopted IFRS standards between 1998 and 2000. They report no significant improvement
in the association between returns and earnings following the adoption. Hung and
Subramanyam (2007) using German firms switching from German GAAP to IFRS during
the period 1998 and 2002 find that the value relevance of book value of equity is not
significantly different between the two accounting systems, whereas earnings are more
value relevant under German GAAP. However, Jermakowicz et al. (2007) report an
increase in the explanatory power of earnings and book value of equity after the voluntary
adoption of IFRS for a sample of DAX-30 firms from 1995 to 2004. Using a Norwegian
setting, Gjerde, Knivsflå, and Sættem (2008) find that book value of equity is more value
relevant under IFRS, whereas earnings are more value relevant under Norwegian GAAP
(NGAAP) employing a price model. The authors find no significant change in value
relevance when a return model is used.
The decision by jurisdictions to mandate IFRS as the basis for financial report preparation
and presentation spawned further research, both intra- and inter-national studies. The
jurisdictions mandatorily adopting IFRS or a version thereof 6 include those with varying
investor protection regimes. Some have a common law origin (e.g., Australia, U.K.) and
others a civil law origin (e.g., Germany, France). The within-country studies produce
inconsistent findings supporting Ball's (2006) view of the difficulty of developing a theory to
explain the pros and cons of standardized accounting rules within a country let alone across
countries. For example, Morais and Curto (2008) find that the value relevance of Portuguese
firms' earnings and book value of equity declines in the post-adoption period. In contrast,
Oliveira, Rodrigues, and Craig (2010), find IFRS adoption by Portuguese firms has no effect
on the value relevance of book value of equity and decreases the value relevance of earnings.
Paglietti (2009), undertaking a similar analysis for Italian firms, finds that the book value of
equity (earnings) is more (less) value relevant under IFRS. She considers also the empirical
linkage between earnings and stock returns as a proxy for value relevance and reports a
significant improvement of the relationship between earnings and stock returns in the
post-IFRS adoption period (2005–2006) compared to the pre-IFRS adoption period (2002–
2004). An investigation of Turkish firms (Türel, 2009) reports increases in the relevance of
earnings and book value of equity for firms in the post-IFRS period. Iatridis (2010) finds no
significant change in the value relevance of accounting information post-IFRS adoption for
U.K. firms. A study of Greek firms find an increased relevance for both earnings and book
value of equity post IFRS adoption (Iatridis & Rouvolis, 2010); however, the findings are
sensitive to the choice of a price versus return model. Using a return model, the authors found
no evidence of value relevance enhancement with IFRS adoption.

6
Jurisdictional approaches to adopting IFRS can vary from requiring firms to prepare financial statements using
IFRS as issued by the IASB thereby ensuring full compliance with IFRS or permitting a version of IFRS which
may contain deviations from IFRS.
K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217 179

Outside of the European Union, Chalmers, Clinch, and Godfrey (2011) find that
earnings (book value of equity) has become more relevant (no change in relevance) in the
post-IFRS period using a price model. However, using a return model, they report the
association between stock return and earnings decreases with IFRS adoption. In Malaysia,
an emerging market, Ismail, Van Zijl, and Dunstan (2010) report that the value relevance
of earnings (book value of equity) increases (decreases) with IFRS adoption.
There are numerous cross-country studies of how mandatory IFRS adoption impacts
the association between accounting information and equity values. These studies include
Devalle et al. (2010), Clarkson et al. (2011), and Agostino, Drago, and Silipo (2011).
Including firms listed in Italy, France, U.K., Germany and Spain, Devalle et al. (2010) find
that the value relevance of both book value of equity and earnings decreases in Italy and
Spain whereas the value relevance of earnings (book value of equity) increases (decreases)
in France and Germany. In contrast, both book value and earnings under IFRS are more
value relevant than domestic GAAP for U.K. firms. However, using a returns-earnings
regression model, they find no significant association in France, Germany and Spain, a
significant improvement in the value relevance for Italy, and similar results in the UK.
Clarkson et al. (2011) examine the value relevance of book value and earnings before
and after the adoption of IFRS for 15 countries, including both common law and civil law
countries. Their results contained no convincing evidence that IFRS improves the value
relevance of the book value of equity and earnings. Agostino et al. (2011), focusing
exclusively on European banks, report that IFRS adoption increases the value relevance of
earnings, whereas it reduces the value relevance of book value.
Using a same year design, studies have also explored the association between
accounting information and market values using the reconciliation information or restated
financial statements. Jarva and Lantto (in press) find no significant change in the value
relevance of book value and earnings for Finnish firms with the adoption of IFRS.
Goodwin et al. (2008) report that IFRS based earnings and book value are not more value
relevant than those reported under Australian GAAP. Chalmers et al. (2008) compare the
value relevance of book value of equity and earnings measured using Australian GAAP
and IFRS for the same year (2005). They find that both domestic GAAP and IFRS numbers
summarize similar amounts of information that is reflected in sample firms' share prices
with the domestic GAAP and IFRS book value of equity measurement reflecting information
relevant to investors beyond each other. In contrast, only IFRS earnings have significant
explanatory power.
In summary, the above narrative review of value relevance studies highlights the mixed
evidence on the financial reporting IFRS adoption effects. Given that the IASB intends
IFRS to be a single set of high quality accounting standards to promote transparent and
comparable information to inform economic decisions in a globalized financial world, we
use meta-analysis to synthesize the value relevance studies. Specifically, we empirical test
the following hypotheses:
Hypothesis 1(a). IFRS adoption increases the association between reported book value of
equity and market value of equity.
Hypothesis 1(b). IFRS adoption increases the association between reported earnings and
market value of equity.
180 K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217

2.2. IFRS adoption and discretionary accruals studies

Studies on the financial reporting effects of IFRS adoption include a focus on the
properties of accounting numbers, particularly properties that proxy for earnings
management. Earnings management is viewed as management's intervention in the external
financial reporting process with the intent of obtaining private gain via influencing investors'
perceptions of the firm's economic performance or influencing the firm's contractual
outcomes (Healy & Wahlen, 1999, Schipper, 1989). The transition to IFRS can reduce the
likelihood of manager's opportunism and earnings management given that the recognition
and disclosure requirements of IFRS relative to some domestic GAAP reduces the scope for
managerial discretion (Leuz, Nanda, & Wysocki, 2003; Ewert & Wagenhofer, 2005; Daske &
Gebhardt, 2006). Alternatively, Barth et al. (2008) note that adopting principle-based
accounting standards, such as IFRS, can increase earnings management given the flexibility
afforded to preparers. The proposition has been empirically tested using discretionary
accruals as the proxy for earnings management. Comparisons of the level of discretionary
accruals before and after IFRS adoption, and between countries adopting IFRS and those not
adopting, have generated mixed results. For instance, Prather-Kinsey and Shelton (2005)
compare South African, U.S. and U.K. firms' discretionary accruals. The sample comprises
1583 U.S. firms complying with U.S.-GAAP, 154 South African firms using IFRS and
1429 U.K. firms using IFRS from 1999 to 2001. They report that discretionary accruals do
not reduce following the adoption of IFRS by South African firms, whereas discretionary
accruals for U.K. firms applying IFRS are significantly lower than that of the U.S. firms
applying US-GAAP. Also, using a voluntary adoption setting, Van Tendeloo and Vanstraelen
(2005) find that during the period 1999–2001, German firms adopting IFRS have higher
discretionary accruals relative to German firms reporting under German GAAP.
Callao and Jarne (2010) assess the effect of the transition to IFRS in the E.U. on earnings
management practices by comparing discretionary accruals in the periods preceding and
immediately after the mandatory adoption of IFRS. Using a sample of listed firms from 11
E.U. countries during 2003 to 2006, they find evidence of an increase in discretionary
accruals post-IFRS adoption. Contrary findings are reported by Chen, Tang, Jiang, and Lin
(2010). Examining discretionary accruals during 2000–2007 for a sample of firms from 15
E.U. countries, this study find that discretionary accruals significantly decrease post-IFRS
adoption. Houqe, van Zijl, Dunstan, and Karim (2012) using data from 46 countries find
that discretionary accruals have not reduced following mandatory adoption of IFRS.
Within-country studies have also produced inconsistent results. Iatridis (2010) investigates
whether the implementation of IFRS in the U.K. reduces earnings management and finds
evidence of such. Iatridis and Rouvolis (2010), who study Greek firms, do not find a
reduction in earnings management following the adoption of IFRS. Kabir, Laswad, and Islam
(2010) focus on the effect of IFRS adoption on earnings management for firms on the New
Zealand Stock Exchange. They use a 2000 to 2009 period and find that discretionary accruals
are significantly higher under IFRS than under New Zealand GAAP. In contrast, evidence for
French companies suggests that mandatory IFRS adoption reduces earnings management
(Zéghal et al., 2011).
Similar to the review of value relevance studies, the narrative review of the association
between earnings management and IFRS adoption highlights inconsistent findings. Given
K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217 181

that IFRS is intended to be a single set of high quality accounting standards to promote
transparent and comparable information to inform economic decisions, we propose the
following hypothesis for empirical testing using meta-analysis:
Hypothesis 2. IFRS adoption decreases discretionary accruals.

2.3. IFRS adoption and analysts' earnings forecasts

Studies examining analysts' earnings forecasts pre- and post-IFRS adoption are
categorized by Brüggemann et al. (2012) as providing indirect evidence of capital-market
effects associated with an accounting regime change. Financial analysts are regarded as
important information intermediaries in capital markets because they provide investors with
future earnings forecasts (Beaver, 1998). Financial statements represent a fundamental source
of information used by analysts to make future earnings forecasts. Therefore, financial analysts
will have a higher quality information set to inform their predictions if the accounting principles
used to prepare financial statements are transparent and comparable in terms of disclosure and
measurement rules. This should increase the accuracy of their earnings forecasts, as well.
Relative to some domestic GAAP, IFRS permits or requires more fair value measurement
and disclosures. 7 These regulations should improve the information environment, the relevance
of accounting information, and predictability. Empirical studies examining the association
between IFRS adoption and analysts' earnings forecast accuracy have been conducted over
time and in various jurisdictions (e.g., Ashbaugh & Pincus, 2001; Cuijpers & Buijink, 2005;
Hodgdon, Tondkar, Harless, & Adhikari, 2008; Byard et al., 2011; Cheong & Al Masum, 2010;
Chalmers et al., 2012; Horton et al., 2012; Jönsson et al., 2012; Kim & Shi, 2012). The results
generally support higher forecast accuracy subsequent to IFRS adoption.
Ashbaugh and Pincus (2001) examine the relationship between the voluntary adoption
of IFRS for a sample of European, Canadian, and Australian firms between 1990 and
1993. Their findings show significant improvement in the analysts' forecast accuracy after
the voluntary adoption of IFRS standards. Hodgdon et al. (2008) also find firms from
common and code law countries have better analysts' forecast accuracy following
voluntary application of IFRS. In contrast, Cuijpers and Buijink (2005) studying E.U.
firms report higher uncertainty among analysts (larger forecast errors) for firms using IFRS
relative to firms using domestic GAAP. 8 Similarly, Jönsson et al. (2012), studying around
2500 firms across five European countries find forecast accuracy is unaffected by IFRS.
Byard et al.'s (2011) findings, using a sample of firms from E.U. countries, document that
both mandatory and voluntary IFRS adoptions are associated with reduced analysts'

7
Standards permitting or requiring fair value include IAS 16 Property, Plant and Equipment, IAS 40 Investment
Property, IFRS 5 No-current Assets Held for Sale and Discontinued Operations, IFRS 8 Operating Segments, IAS
36 Impairment of Assets, IAS 37 Provisions, Contingent Liabilities and Contingent Assets, IAS 38 Intangible
Assets, and IAS39 Financial Instruments Recognition and Measurement (replaced by IFRS 9 Financial
Instruments).
8
The authors note that this may be due to a time lag effect with the benefits of a richer information environment
taking time to permeate through the investment community.
182 K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217

forecasts errors although the results differ according to the countries' enforcement regimes
and the extent to which IFRS differ from local GAAP. Similar findings have been reported
by Jiao, Koning, Mertens, and Roosenboom (2011) on the impact of mandatory IFRS
adoption on analysts' forecasts errors.
Within the Asia-pacific region (Australia, New Zealand and Hong Kong), Cheong et al.
(2010) find that IFRS adoption is negatively associated with analysts' earnings errors over
a period from 2001 to 2008. Cheong and Masum (2010), Cotter, Tarca, and Wee (2012),
and Chalmers et al. (2012) restrict their studies to Australian firms. All three studies find
that IFRS adoption improves analysts' earnings forecast quality.
The narrative review of the association between analysts forecast accuracy and IFRS
adoption generally shows less variability in the findings compared to value relevance and
discretionary accrual studies. Further, most studies report a positive association between
IFRS adoption and analysts' earnings accuracy. Therefore, we propose the following
hypothesis for empirical testing using meta-analysis:
Hypothesis 3. IFRS adoption improves analysts earnings forecast accuracy.

2.4. Factors moderating the IFRS adoption effects

The preceding literature reviews demonstrates inconsistency in studies' findings of the


financial reporting effects and, to a lesser extent, capital market effects, of IFRS adoption.
There are various factors espoused in the literature that could be contributing to the
heterogeneity in the results. Using meta-analysis, it is possible to quantitatively determine
if these factors, referred to as moderating factors, influence the IFRS adoption effects
reported. As accounting is the product of its environment, prior research suggests such
divergence in results are due to jurisdictional differences. For example, Ball (1995) and
Nobes (1998) contend that accounting systems and the level of market transparency are
functions of the nature of the legal systems and financing of firms in a country. These
views have been broadly assessed in terms of whether a country has a code or common-law
legal origin. LaPorta, Lopez-de-Silanes, and Shleifer (1998) classify the origin of laws
governing investor protection as common law, German civil law, French civil law and
Scandinavian civil law. They report that investor protection is stronger for common law
jurisdictions, weaker for French civil law jurisdictions with Scandinavian and German
civil law within this range. The extent of investor protection can influence the benefits
associated with IFRS adoption and this can be a factor moderating the IFRS adoption
effects. For example, Barth et al. (2008) find that the value relevance of financial reports is
lower for countries where: the financial systems are bank oriented (as opposed to market
oriented); private sector bodies are not involved in the accounting standard-setting process;
accounting practices follow the Continental model (as opposed to the British–American
model); the tax book conformity is greater; and spending on auditing services is relatively
low. Accordingly, we group the value relevance, discretionary accruals, and analysts'
earnings forecast studies by legal origin to statistically test if this is a moderating factor.
In addition to our meta-analysis of studies grouped according to a country's legal origin,
we conduct an analysis to assess if a country's level of accounting and auditing enforcement
(Enforcement) and differences between a country's domestic accounting standards and
K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217 183

IFRS (Divergence and Absence) moderate the IFRS adoption effects for value relevance,
discretionary accruals, and analysts' earnings forecasts accuracy studies. The financial
reporting benefits of IFRS adoption can be impeded by the level of accounting and auditing
enforcement in a country (Landsman, Maydew, & Thornock, 2012; Zeff, 2007). Ball (2006)
contends that a ‘veneer of uniformity’ conceals differences in IFRS implementation. Using an
enforcement proxy constructed by Preiato, Brown, and Tarca (2010) we group studies into
high and low enforcement groups and meta-analyze these groups. 9
Similarly, the benefits of IFRS adoption in isolation of changing other institutional
factors, such as the capital market development and legal environment, may not enhance
financial reporting quality (Ding, Hope, Jeanjean, & Stolowy, 2007). Ding et al. (2007)
using indices of differences between domestic accounting standards and IFRS, absence and
divergence, 10 find that market synchronicity (fraction of stocks that move in the same
direction) varies depending on the level of absence and divergence between domestic
GAAP and IFRS. Using Ding et al.'s (2007) absence and divergence indices, we group
studies into high and low absence and divergence groups and meta-analyze these groups.
To partition studies into high and low groups for the enforcement, absence and divergence
moderating factors, we compute the median index value and then we sub-group studies
with respect to these moderator variables. When the score attributed to each study or
country is inferior (superior) to the median, the group is categorized as having low (high)
accounting and auditing enforcement, absence and divergence.
Jeanjean and Stolowy (2008) argue that firms voluntarily adopting IFRS suffer from a
sample selection bias as only firms seeing an advantage in this accounting change would
implement it. This selection bias has the potential to overestimate the expected benefits
of the transition to IFRS, which are inferred solely from studying firms that find it in their
interest to adopt IFRS before its mandatory application. Further, Platikanova (2009)
suggests that investors only partially anticipate IFRS effects for voluntary adopters and
Daske, Hail, Leuz, and Verdi (2008) find the capital market effects for voluntary adopters
varies according to the seriousness of the adoption. Therefore, as voluntary versus
mandatory adoption of IFRS may moderate the IFRS effects, we test for this moderating
effect in our sample of value relevance, discretionary accruals and analysts' earnings forecast
accuracy studies.
Studies investigating the value relevance of earnings pre- and post-IFRS adoption
employ a price model (stock price regressed on earnings per share) and/or a return model
(returns regressed on scaled earnings variables). Kothari and Zimmerman (1995) empirically
find that that price models' earnings response coefficients are less biased while return models
have less serious econometric problems than price models. Van der Meulen, Gaeremynck,

9
Preiato et al. (2010) devise an accounting and auditing enforcement index for 51 countries in 2002, 2005 and
2008. The index includes 11 items relating to auditing quality and 7 items relating to a country's enforcement
body. Details on the index are available in Appendix 2, pp.49–50 of their paper.
10
Absence measures the extent to which the rules regarding certain accounting issues are missing in domestic
accounting standards but are covered in international accounting standards. Divergence applies in circumstances
where the rules regarding the same accounting issue differ in domestic accounting standards and international
accounting standards (Ding et al., 2007). The absence and divergence indices for various countries are available in
Ding et al. (2007) (Table 1, pp. 156 and 157).
184 K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217

and Willekens (2007) suggest price earning regressions do not take into account how market
prices react to positive and negative earnings. Consequently, we test if the mixed results for
the IFRS adoption effects on the value relevance of earnings are due to model specification,
by meta-analyzing our sample of studies classified according to their use of a price or return
model.
Studies of IFRS adoption effects on discretionary accruals employ various models to
separate accruals into their non-discretionary and discretionary components. We classify our
sample of discretionary accrual studies according to the model used to measure the construct
of interest. The models used are those presented in Jones (1991), Larcker and Richardson
(2004), Jeanjean and Stolowy (2008), Kothari, Leone, and Wasley (2005), and Barth et al.
(2008). Our tests seeks to determine if the method used to measure discretionary accruals is a
moderating factor in the discretionary accruals IFRS adoption effect findings.
In sum, we hypothesize that the association between IFRS adoption and value relevance,
discretionary accruals and analysts' forecast accuracy is moderated by differences associated
with a jurisdiction's legal origin, accounting and auditing enforcement regime and the extent
to which domestic GAAP is congruent with IFRS. We also hypothesize that the adoption
incentive — voluntary or mandatory — moderates the associations. Acknowledging that
design choices can moderate the empirical findings, the moderating effect of using a price or
return model is also tested when meta-analyzing value relevance studies. For discretionary
accrual studies, the moderating effect of the model used to estimate discretionary accruals is
investigated.

3. Data

Several combinations of keywords are used to obtain relevant studies concerning IFRS
adoption effects and 1) value relevance of book value of equity and earnings, 2) discretionary
accruals, and 3) analysts' earnings forecasts for our analysis. 11 Keywords used include ‘IFRS/
IAS adoption and value relevance’, ‘IAS/IFRS adoption and earnings management or
discretionary accruals’ and ‘IAS/IFRS adoption and analysts’ forecasts accuracy/errors in
different editorial sources including ABI Inform, Blackwell, EBSCO, JSTOR, Emerald,
Science Direct, Springer, Taylor and Francis, and SSRN. Further, we also consult numerous
accounting and finance journals that deal with these topics. We also consulted references in
the collected papers to identify other empirical studies relevant to our topic.
Our initial sample consists of 88 papers after ensuring that an earlier version of same
study had not been included. Eleven papers are eliminated as they only report descriptive
information and do not contain sufficient statistical information for further analysis. 12
Further, as our meta-analysis is restricted to value relevance, discretionary accruals, and
analysts forecast studies, we eliminated a further 20 empirical papers, reducing the sample

11
It is beyond the scope of this paper to include studies investigating the cost of capital, liquidity and earnings
persistence consequences of IFRS adoption or studies examining the effect of IFRS on other consequences such as
information content (Landsman et al., 2012) and earnings smoothness (Capkun, Collins, & Jeanjean, 2012).
12
For example, studies reporting only the coefficients without the exact probability value or associated t-statistic
(e.g. Aharony, Barniv, & Falk, 2010) are eliminated.
K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217 185

to 57 papers yielding 96 independent samples for accumulation and analysis. Table 1


summarizes the sample selection process.
It is common for a single primary study to contribute multiple effect sizes. Many studies
estimate regressions using sub-samples of firms and use alternative measures of the
dependent and independent variables. Multiple effect sizes can be dealt with by calculating
an average effect size for each study so that each primary study contributes only one effect
size. However, this method underestimates the degree of heterogeneity within studies
(Cheung & Chan, 2004). The average effect size is “conceptually ambiguous” when
moderator variables vary within as well as across studies (Hunter et al., 1982). Therefore,
we compute multiple effect sizes for each study and use them as moderating factors for
further analysis.
Tables 2–5 present summaries of the studies included in the meta-analysis. Tables 2 and 3
detail the price and return model value relevant studies, while Table 4 lists the discretionary
accruals studies meta-analyzed. Table 5 details the studies investigating analysts' earnings
forecast accuracy and IFRS adoption that are included in our meta-analysis. 13 For each study
listed, the following attributes are included: year of publication, country focus, whether IFRS
adoption is voluntary or mandatory, the number of sample firms, the reporting years examined,
and the effect size measure (r) pre- and post-IFRS adoption. Additionally, for discretionary
accrual studies (Table 4), the model used to measure discretionary accruals is noted.

4. Meta-analysis techniques

Some critics have suggested that narrative reviews suffer because there are not
standardized rules about how to generalize from individual results for a particular research
topic (e.g., Glass, 1976; Hunter et al., 1982; Rosenthal, 1991). Given these limitations,
meta-analysis can be used to overcome the problem of reduced statistical power in studies
with small sample sizes and allows more accurate data analysis relative to narrative
reviews. We follow the meta-analysis technique developed by Hunter et al. (1982) and
Hunter and Schmidt (2000) and Rosenthal (1991) in order to draw logical conclusions from
papers related to IFRS adoption and financial reporting quality. The meta-analysis technique
requires the computation of the effect size 14 to measure the magnitude of the association
between the dependent variables (value relevance, discretionary accruals and analysts'
forecast accuracy in our study) and the independent variable (IFRS adoption). For studies
reporting the coefficient of correlation (r), this statistic is used to measure the effect size.
rffiffiffiffiffiffiffiffiffiffiffiffiffi
t2
When only t-statistic or z-statistic results are reported, r is computed as or pZffiffiNffi where
ðt 2 þ df Þ
df is the residual degrees of freedom computed using the sample size and number of
parameters estimated in a regression. According to Hunter and Schmidt (2000), three steps

13
Most of the value relevance studies assess the value relevance before and after the adoption of IFRS, while
discretionary and analyst forecasts studies report the association within a single regression model.
14
See Rosenthal (1991) for different methods to compute effect size from reported statistics in published papers.
186
Table 2
Studies included in the meta-analysis of value relevance and IFRS adoption (price models).

K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217


Study Country Reporting Legal origin Adoption Effect size Source of information
years
IFRS or reconciliation Domestic GAAP
Sample Book Earnings Sample Book Earnings
value value
Athianos, Vazakidis, Greece 2003–04 Civ/French Voluntary 40 0.454 0.185 40 0.442 0.507 Table 5, p.39
and Dritsakis (2005)
Hung and Subramanyam Germany 1998–02 Civ/German Voluntary 80 0.290 0.012 80 0.290 0.291 Table 5, p.644
(2007)
Jermakowicz et al. Germany 1995–04 Civ/German Voluntary 135 0.449 0.809 88 0.154 0.081 Table 12, Panel B, p182
(2007)
Capkun, Cazavan-Jeny, SC 2004–05 Mandatory 1528 0.177 0.296 1528 0.195 0.147 Table 7, Models 3 & 4,
Jeanjean, and Weiss p.53
(2008)
Chalmers et al. (2008) Australia 2004–05 Common Mandatory 583 0.285 0.266 583 0.301 0.266 Table 3, p.243
Morais and Curto(2008) Portugal 1995–05 Civ/French Mandatory 35 0.481 0.080 264 0.747 0.244 Tables 8 & 9, p.110
Gjerde et al. (2008) Norway 2004 Civ/Scandinavian Mandatory 145 0.889 0.735 145 0.845 0.787 Table 3, Panel A, p.100
Goodwin et al. (2008) Australia 2005 Common Mandatory 1065 0.627 0.266 1065 0.698 0.309 Table 5, Panel A, p.101
Kadri and Mohamed Malaysia 2004–07 Common Mandatory 118 0.421 0.414 118 0.421 0.398 Tables 2 & 3, p. 10–11
(2008)
Karampinis and Hevas Greece 2003–06 Civ/French Mandatory 170 0.340 0.684 170 0.217 0.611 Table 4, Panels
(2009) A & B, p.88
Paglietti (2009) Italy 2002–07 Civ/French Mandatory 422 0.713 0.683 432 0.705 0.491 Table 3,
Panels B & C, p.15
Taylor (2009) UK 2005 Common Mandatory 50 0.137 − 0.125 50 0.195 0.589 Table 5, p.52
Taylor (2009) Hong Kong 2005 Common Mandatory 50 − 0.068 0.088 50 0.170 0.408 Table 5, p.52
Taylor (2009) Singapore 2005 Common Mandatory 50 0.014 − 0.135 50 0.186 0.625 Table 5, p.52
Türel (2009) Turkey 2001–02 & Civ/French Mandatory 406 0.203 0.918 382 0.659 − 0.462 Table 3, Panels A & B,
2005–06 p.126
Devalle et al. (2010) Germany 2002–07 Civ/German Mandatory 1086 0.123 0.070 426 0.777 0.659 Table 5, p.105
Devalle et al. (2010) Spain 2002–07 Civ/French Mandatory 325 0.106 0.107 263 0.231 − 0.141 Table 5, p.105
Devalle et al. (2010) France 2002–07 Civ/French Mandatory 1264 0.462 0.485 1050 0.163 0.039 Table 5, p.105
Devalle et al. (2010) Italy 2002–07 Civ/French Mandatory 503 0.116 0.085 355 0.276 0.181 Table 5, p.105
Devalle et al. (2010) UK 2002–07 Common Mandatory 1856 0.145 0.482 921 0.129 − 0.370 Table 5, p.105
0.025 − 0.088

K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217


Oliveira et al. (2010) Portugal 1998–08 Civ/French Mandatory 354 354 0.075 0.132 Table 2, Model 4, p.248
Iatridis (2010) UK 2004–05 Common Mandatory 241 0.276 0.176 241 0.773 0.444 Table 3, Panel A, p.201
Iatridis and Rouvolis Greece 2004–05 Civ/French Mandatory 254 0.214 0.606 254 0.291 0.744 Table 5, Panel A, p.62
(2010)
Ismail et al. (2010) Malaysia 2002–09 Common Mandatory 1166 0.233 0.518 1497 0.378 0.442 Table 4, p.30
Agostino et al. (2011) SC 2000–06 Mandatory 1201 − 0.092 0.100 1201 0.006 0.065 Table 3 (2), p.447
Chalmers et al. (2011) Australia 2004 & 2006 Common Mandatory 1421 0.237 0.232 1296 0.303 0.150 Table 2, Panel A, p.158
Clarkson et al. (2011) Australia 2004 Common Mandatory 895 0.255 0.551 895 0.312 0.530 Table 3 (OLS), p.9
Clarkson et al. (2011) Ireland 2004 Common Mandatory 30 − 0.162 0.724 30 0.395 0.494 Table 3 (OLS), p.9
Clarkson et al. (2011) UK 2004 Common Mandatory 699 0.356 0.522 699 0.483 0.584 Table 3 (OLS), p.9
Clarkson et al. (2011) Belgium 2004 Civ/French Mandatory 72 0.668 0.013 72 0.605 0.771 Table 3 (OLS), p.9
Clarkson et al. (2011) Denmark 2004 Civ/Scandinavian Mandatory 97 0.716 − 0.057 97 0.707 − 0.029 Table 3 (OLS), p.9
Clarkson et al. (2011) Finland 2004 Civ/Scandinavian Mandatory 101 0.417 0.520 101 0.507 0.468 Table 3 (OLS), p.9
Clarkson et al. (2011) France 2004 Civ/French Mandatory 484 0.693 0.290 484 0.509 0.178 Table 3 (OLS), p.9
Clarkson et al. (2011) Germany 2004 Civ/German Mandatory 185 0.709 0.602 185 0.479 0.626 Table 3 (OLS), p.9
Clarkson et al. (2011) Greece 2004 Civ/French Mandatory 144 0.314 0.262 144 0.211 0.435 Table 3 (OLS), p.9
Clarkson et al. (2011) Holland 2004 Civ/French Mandatory 106 0.611 0.456 106 0.498 0.568 Table 3 (OLS), p.9
Clarkson et al. (2011) Italy 2004 Civ/French Mandatory 207 0.796 0.308 207 0.812 0.311 Table 3 (OLS), p.9
Clarkson et al. (2011) Norway 2004 Ci/Scandinavian Mandatory 110 0.088 0.308 110 0.260 0.131 Table 3 (OLS), p.9
Clarkson et al. (2011) Portugal 2004 Civ/French Mandatory 32 0.544 0.679 32 0.111 0.628 Table 3 (OLS), p.9
Clarkson et al. (2011) Spain 2004 Civ/French Mandatory 109 0.338 0.764 109 0.178 0.722 Table 3 (OLS), p.9
Clarkson et al. (2011) Sweden 2004 Civ/Scandinavian Mandatory 217 0.467 0.174 217 0.526 0.173 Table 3 (OLS), p.9
Jarva and Lantto Finland 2004 Civ/Scandinavian Mandatory 91 0.777 0.237 91 0.744 0.242 Table 10, p.64
(in press)
Macías and Muiño SC 2004 Voluntary 366 0.293 0.431 673 0.250 0.450 Table 3, p.63
(2011)
(continued on next page)

187
188
K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217
Table 2 (continued)
Study Country Reporting Legal origin Adoption Effect size Source of information
years
IFRS or reconciliation Domestic GAAP
Sample Book Earnings Sample Book Earnings
value value
Liu, Yao, Hu, China 2005–08 Civ/French Mandatory 1620 0.032 0.234 1620 0.129 0.189 Table 3, Panel A, p. 670
and Liu (2011)
Narktabtee and SC 2002–07 Mandatory 1218 0.380 0.640 1218 0.300 0.590 Table 3, Panel B pool,
Patpanichchot (2011) p.87
Chua, Cheong, and Australia 2001–04 & Common Mandatory 688 0.650 0.780 688 0.590 0.700 Table 6, Panels A & C,
Gould (2012) 2006–09 p. 136
Tsalavoutas, André, Greece 2001–08 Civ/French Mandatory 884 0.256 0.183 922 0.326 0.293 Table 4, Panel A, p.30
and Evans (2012)
Notes: Study refers to the number of independent samples; sample refers to the number of observations; Civ refers to civil law; and SC indicates that the study incorporates
a mixture of common law and civil law countries.
Table 3
Studies included in the meta-analysis of value relevance and IFRS adoption (return models).
Study County Reporting Legal origin Adoption Effect size Source of information
years
IFRS or Domestic GAAP
reconciliation

K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217


Sample Earnings Sample Earnings
Kinnunen et al. (2000) Finland 1984–92 Civ/Scandinavian Voluntary 86 0.096 86 0.239 Table 2, Panel B, p.509
Bartov et al. (2005) Germany 1998–2000 Civ/German Voluntary 915 0.243 915 0.272 Table 4, Panel A, p.110
Hung and Subramanyam Germany 1998–2002 Civ/German Voluntary 60 0.098 60 0.126 Table 6, p.647
(2007)
Van der Meulen et al. Germany 2000–02 Civ/German Voluntary 164 0.094 149 0.328 Table 4, Model 1a, p.135
(2007)
Capkun et al. (2008) SC 2004–05 Civ/German Mandatory 1562 0.052 1556 0.094 Table 9 Full, p.57
Gjerde et al. (2008) Norway 2004 Civ/Scandinavian Mandatory 130 0.114 130 0.112 Table 6, Panel A, p.104
Goodwin et al. (2008) Australia 2005–06 Common Mandatory 922 0.139 922 0.138 Table 5, Panel B, p.101
Paglietti (2009) Italy 2002–07 Civ/French Mandatory 444 –0.072 442 0.223 Table 4, Panel B, p. 16
Devalle et al. (2010) Germany 2002–07 Civ/German Mandatory 677 0.181 272 0.611 Table 6, p.108
Devalle et al. (2010) Spain 2002–07 Civ/French Mandatory 142 − 0.039 223 − 0.095 Table 6, p.108
Devalle et al. (2010) France 2002–07 Civ/French Mandatory 638 0.193 720 0.156 Table 6, p.108
Devalle et al. (2010) Italy 2002–07 Civ/French Mandatory 245 0.321 252 − 0.152 Table 6, p.108
Devalle et al. (2010) UK 2002–07 Common Mandatory 1029 − 0.250 725 − 0.009 Table 6, p.108
Iatridis (2010) UK 2004–05 Common Mandatory 241 0.118 241 0.141 Table 3, Panel B, p.201
Iatridis and Rouvolis Greece 2004–2006 Civ/French Mandatory 254 0.184 254 0.262 Table 5, Panel B, p.62
(2010)
Chalmers et al. (2011) Australia 2004 & 06 Common Mandatory 1183 0.037 1030 0.127 Table 8, Panel A, p.168
Ismail et al. (2010) Malaysia 2002–09 Common Mandatory 1166 0.449 1497 0.165 Table 5, p.31
Jarva and Lantto Finland 2004 Civ/Scandinavian Mandatory 92 0.509 92 0.522 Table 7, Panel A, p.60
(in press)
Liu et al. (2011) China 2005–2008 Civ/French Mandatory 1620 0.139 1620 0.103 Table 3, Panel B, p. 670 ()
Chua et al. (2012) Australia 2001–04 & 2006–09 Common Mandatory 688 0.180 688 0.030 Table 6, Panels A &C, p. 136 & 137
Tsalavoutas et al. Greece 2001–08 Civ/French Mandatory 871 0.082 917 0.087 Table 4, Panel C, p.30
(2012)
Notes: Study refers to the number of independent samples; Sample refers to the number of observations; Civ refers to civil law; the study of Van der Meulen et al. (2007)

189
considers IFRS versus US GAAP; and SC indicates that the study incorporates a mixture of common law and civil law countries.
190
K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217
Table 4
Studies included in the meta-analysis of discretionary accrual and IFRS adoption.
Study Country Legal origin Adoption Sample Reporting Accrual proxy Effect size Source of
years information
IFRS
adoption
Prather-Kinsey and South Africa Common Voluntary 154 1999–01 ABS DACC — Jones (1991) 0.028 Table 3, p.165
Shelton (2005)
Prather-Kinsey and UK Common Voluntary 1429 1999–01 ABS DACC — Jones (1991) − 0.055 Table 3, p.165
Shelton (2005)
Van Tendeloo and Germany Civ/German Voluntary 636 1999–01 ABS DACC — Jones (1991) 0.110 Table 8, p.172
Vanstraelen (2005)
Jeanjean and Stolowy Australia Common Mandatory 1933 2002–06 Income scaled by total assets 0.065 Table 2, p.489
(2008)
Jeanjean and Stolowy France Civ/French Mandatory 1316 2002–06 Income scaled by total assets 0.134 Table 2, p.489
(2008)
Jeanjean and Stolowy UK Common Mandatory 1802 2002–06 Income scaled by total assets 0.150 Table 2, p.489
(2008)
Guenther, Gegenfurtner, Germany Civ/German Voluntary 1311 1998–2004 ABS DACC — Ball and Shivakumar (2005) 0.035 Table 5, Panel B,
Kaserer, and p.42
Achleitner (2009)
Guenther et al. (2009) Germany Civ/German Mandatory 857 2005–08 ABS DACC - Ball and Shivakumar (2005) − 0.090 Table 5, Panel C,
p.42
Zhou, Xiong, and China Civ/French Voluntary 2286 1994–00 VARNI – Barth et al. (2008) 0.002 Table 3, p.51
Ganguli. (2009)
Callao and Jarne (2010) Belgium Civ/French Mandatory 17 2003–06 DACC — Larcker and Richardson (2004) 0.388 Table 3, p.173
Callao and Jarne (2010) Finland Civ/ Mandatory 48 2003–06 DACC – Larcker and Richardson (2004) 0.041 Table 3, p.173
Scandinavian
Callao and Jarne (2010) France Civ/French Mandatory 95 2003–06 DACC — Larcker and Richardson (2004) 0.528 Table 3, p.173
Callao and Jarne (2010) Germany Civ/German Mandatory 64 2003–06 DACC – Larcker and Richardson (2004) − 0.013 Table 3, p.173
Callao and Jarne (2010) Greece Civ/French Mandatory 164 2003–06 DACC — Larcker and Richardson (2004) 0.185 Table 3, p.173
Callao and Jarne (2010) Italy Civ/French Mandatory 13 2003–06 DACC — Larcker and Richardson (2004) 0.374 Table 3, p.173
Callao and Jarne (2010) Netherlands Civ/French Mandatory 72 2003–06 DACC — Larcker and Richardson (2004) 0.016 Table 3, p.173
DACC — Larcker and Richardson (2004) − 0.201

K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217


Callao and Jarne (2010) Portugal Civ/French Mandatory 21 2003–06 Table 3, p.173
Callao and Jarne (2010) Spain Civ/French Mandatory 63 2003–06 DACC — Larcker and Richardson (2004) 0.077 Table 3, p.173
Callao and Jarne (2010) Sweden Civ/ Mandatory 99 2003–06 DACC – Larcker and Richardson (2004) 0.011 Table 3, p.173
Scandinavian
Callao and Jarne (2010) UK Common Mandatory 331 2003–06 DACC — Larcker and Richardson (2004) 0.194 Table 3, p.173
Chen et al. (2010) SC Mandatory 9228 2000–07 ABS DACC — Jones (1991) − 0.066 Table 11, p.270
Kabir et al. (2010) New Common Mandatory 543 2002–09 ABS DACC — Jones (1991) 0.083 Table 6, Panel A,
Zealand p.352
Iatridis (2010) UK Common Mandatory 241 2004–05 ABS DACC - Jones (1991) − 0.103 Table 1a, p.198
Iatridis and Rouvolis Greece Civ/French Mandatory 254 2004–06 Earnings less cash flows from operating 0.024 Table 1, p.59
(2010) activities — Barth, Cram, and Nelson
(2001)
Liu et al. (2011) China Civ/French Mandatory 1620 2005–08 VARNI — Barth et al. (2008) 0.009 Table 1, p. 668
Marra, Mazzola, and Italy Civ/French Mandatory 444 2003–06 ABS abnormal working capital accrual − 0.073 Table 3, p.217
Prencipe (2011)
Zéghal et al. (2011) France Civ/French Mandatory 628 2003–06 ABS DACC — Kothari et al. (2005) − 0.093 Table 2, p.67
Chua et al. (2012) Australia Common Mandatory 688 2001–04 VARNI — Barth et al. (2008) − 0.084 Table 5, p. 134
& 2006–09
Houqe et al. (2012) SC Mandatory 104,348 2002–07 Francis and Wang (2008) 0.002 Table 5, p. 351
Notes: Study refers to the number of independent samples; Sample refers to the number of observations; Civ refers to civil law countries; and SC indicates that the study
incorporates a mixture of common law and civil law countries; DACC refers to discretionary accruals; ABS DACC refers to absolute discretionary accruals; VARNI refers
to earnings variability.

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K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217
Table 5
Studies included in the meta-analysis of analysts' earnings forecast accuracy and IFRS adoption.
Study Country Reporting Legal Origin Adoption Sample Forecast Effect size Source of information
years accuracy
IFRS adoption
Ashbaugh and Pincus SC 1990–93 Voluntary 136 AFE − 0.262 Table 5, Panel B, p.428
(2001)
Ashbaugh and Pincus Canada 1990–93 Common Voluntary 24 AFE − 0.057 Table 5, Panel C, p.428
(2001)
Ernstberger et al. Germany 1998–2004 Civ/German Voluntary 2104 AFE − 0.062 Table 9, Model 2 a, p.44
(2008) a
Hodgdon et al. (2008) SC 1999–2000 Voluntary 805 AFE − 0.172 Table 5, p.10
Cheong and Masum Australia 2002–07 Common Mandatory 381 AFE − 0.182 Table 3, Eq. (8), p.80
(2010)
Cheong et al. (2010) Australia, Hong Kong 2001–08 Common Mandatory 456 AFE − 0.103 Table 5, Eq. (3), p.137
and New Zealand
Cotter et al. (2012) Australia 2003–07 Common Mandatory 512 AFE − 0.228 Table 4,Model 1, p.17
Glaum, Baetge, Germany 1997–2005 Civ/German Voluntary 1908 AFE − 0.105 Table 5, p. 20
Grothe, and
Oberdorster (2011)
Chalmers et al. (2012) Australia 1993–2007 Common Mandatory 1664 AFE − 0.088 Table 4, p.15
Byard et al. (2011) SC 2003–04 Voluntary 250 AFE − 0.110 Table 2, p.81
Byard et al. (2011) SC 2005–06 Mandatory 1168 AFE − 0.078 Table 2, p.81
Jiao et al. (2011) SC 2004–2006 Mandatory 558 AFE − 0.091 Table 3, Panel A, p.28
Tan et al. (2011) a SC 2001–05 Voluntary 519 AFE − 0.067 Table 5, Nctry25, p.1333
− 0.022

K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217


Horton et al. (2012) SC 2001–07 Mandatory 47,209 AFE Table 3, All firms, p. 32
Kim and Shi (2012) SC 1998–2004 Voluntary 17,227 AFE − 0.039 Table 3, p. 56
Jönsson et al. (2012) Sweden 1995–2009 Civ/Scandinavian Mandatory 1361 AFE − 0.032 Table 3, p. 29, Quantile 10
Jönsson et al. (2012) Netherlands 1995–2009 Civ/French Mandatory 918 AFE 0.066 Table 3, p. 29, Quantile 10
Jönsson et al. (2012) France 1995–2009 Civ/French Mandatory 2966 AFE − 0.016 Table 3, p. 29, Quantile 10
Jönsson et al. (2012) Germany 1995–2009 Civ/German Mandatory 2096 AFE − 0.019 Table 3, p. 29, Quantile 10
Jönsson et al. (2012) UK 1995–2009 Common Mandatory 5056 AFE − 0.030 Table 3, p. 29, Quantile 10
 
Median forecast EPSit −Actual EPSit 
Notes: Analysts' earnings forecast accuracy is defined as: AFEit ¼  Actual EPSit 
Study refers to the number of independent samples; Sample refers to the number of observations; Civ refers to civil law; and SC indicates that the study incorporates a
mixture of common law and civil law countries.
a
Studies that consider the opposite of AFE (AFEit ). They provide a significant positive association between AFE and IFRS adoption. Therefore, we consider a negative
effect size.

193
194 K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217

should be followed to determine the mean correlation ðr Þ and the estimate of the population
variance. The steps are:

Step 1 Compute the mean correlation ðr Þ using Eq. (1):


∑ðr i :N i Þ
r¼ ð1Þ
∑N i

where:

Ni sample size for study i,


ri Pearson correlation coefficient for study i.

Step 2 Calculate the observed variance (Sr2) and the sampling error variance (Se2) using
Eqs. (2) and (3), respectively:

∑N i ðr i −r Þ2
S2r ¼ ð2Þ
∑N i
 2
1−r 2 K
S2e ¼ ð3Þ
∑Ni

where K is the number of individual studies (effect sizes) included in the meta-
analysis. Larger sample sizes are given more weight in order to reduce sampling
error that declines as sample size increases (Hunter & Schmidt, 1990).
Step 3 The variance used to estimate the interval confidence is obtained using Eq. (4).
 
S2r =K : ð4Þ

Given these two key statistics, the 95% confidence interval is normally constructed to
assess the validity of the association of interests as per Eq. (5):
 qffiffiffiffiffiffiffiffiffiffiffi qffiffiffiffiffiffiffiffiffiffiffi  qffiffiffiffiffiffiffiffiffiffiffi qffiffiffiffiffiffiffiffiffiffiffi
r− S2r =K Z 0:975 ; r þ S2r =K Z 0:975 ¼ r− S2r =K ð1:96Þ; r þ S2r =K ð1:96Þ :

ð5Þ

A 95% confidence interval that does not include zero is an indicator that there is a true
association between the variables of interest (Dalton, Daily, Johnson, & Ellstrand, 1999). To
test for moderating effects, a chi-square (χ 2) statistic test is suggested to determine whether
the observed variance is trivial or higher than expected (heterogeneous) (Hunter et al., 1982)
using Eq. (6):

N S2r
χ 2K−1 ¼  2 : ð6Þ
1−r 2
K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217 195

The hypothesis of homogeneity will be rejected in many cases. In order to limit Type I
error rates, we use a random effects model using Sr2/k as the standard error in order to create
a 95% confidence interval around the mean effect size, and to assess the significance of the
null hypothesis, (H0: r = 0) (Hunter & Schmidt, 2000). The homogeneity test is developed
to determine whether the likelihood of variance among effect sizes is due only to sampling
error. Hunter et al. (1982) argue that much of the apparent contradiction in empirical
research on a particular topic is the product of statistical artifacts such as range restrictions,
measurement unreliability, clerical errors, and differences in factor construct between
alternative measures of the same construct, in addition to sampling error.
The inability to estimate additional sources of errors provides a conservative estimate of
population correlation and variance that may increase the likelihood of finding potential
moderators. However, Schmidt, Hunter, Pearlman, and Hirsh (1985) argue that in
meta-analysis, sampling error generally accounts for 75 to 95% of the variability across
studies and therefore correlation beyond sampling errors does not have much effect on the
variability. Prior meta-analytic studies in accounting and follow this cut-off (e.g., Ahmed
& Courtis, 1999; García-Meca & Sánchez-Ballesta, 2010; Trotman & Wood, 1991). Tests
for the effect of moderating variables involve sub-grouping studies and calculations of r
and sr2 for each of the hypothesized sub-groups. The purpose of sub-grouping is to reduce
heterogeneity and to increase explanatory power, and this process continues until the
residual variance is considered to be trivial, or until all identified moderating variables have
been assessed. Gooding and Wagner (1985) suggest that studies should be classified
according to differences in the measurement of the dependent and the explanatory variable
to reduce the level of variance in results.
As discussed, we sub-group studies to examine moderating effects on the associations.
Sub-groups are formed according to the jurisdictions' legal origin, accounting and auditing
enforcement regime, the congruence between domestic GAAP and IFRS, and the mode of
IFRS adoption. Consistent with LaPorta et al. (1998), we classify legal origin into four groups:
1) Common law studies (Common), 2) French civil law studies (Civ/French), 3) German
civil law studies (Civ/German), and 4) Scandinavian civil law studies (Civ/Scandinavian).
The rationale for this classification is based on the assumption that common law and civil
law countries have different properties of accounting information and accounting system
attributes including professionalism and transparency for common law versus statutory
control and secrecy for civil law countries. This will influence the IFRS adoption effects.
Our classification is based on Stulz and Williamson (2003) (Table 1, p.323–24) and Leuz
et al. (2003). For instance, countries in the common law group include the U.K., Canada,
Australia, New Zealand, Malaysia, Hong Kong, Singapore, Ireland and South Africa;
French civil law countries include Belgium, China, Greece, France, Italy, Netherlands,
Portugal, Spain and Turkey; Scandinavian civil law countries include Denmark, Finland,
Norway and Sweden; and Germany is the sole country in the German civil law category.
Using the index of jurisdictional accounting and auditing enforcement from Preiato et
al. (2010), we sub-group studies into those conducted in jurisdictions with an index higher
and lower than the mean (Enforcement high and Enforcement low, respectively). To group
studies by the differences between a country's domestic GAAP and IFRS, we use Ding et
al.'s (2007) indices to construct high and low absence (Absence high and Absence low)
and divergence (Divergence high and Divergence low) sub-groups. Given that IFRS
196 K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217

adoption may be studied in a voluntary or mandatory setting, sub-group meta-analysis is


also performed on groups of voluntary and mandatory studies, labeled as ‘Voluntary
adoption’ and ‘Mandatory adoption’ respectively. With regard to design issues, we
sub-divide value relevance studies into those using price and return models. Further, the
discretionary accrual studies are sub-grouped according to the model used to estimate
discretionary accruals. 15

5. Results

Our findings from meta-analyzing value relevance studies are reported in Tables 6 to 8.
The meta-analysis of discretionary accruals and analysts' forecast accuracy and their
association with IFRS adoption are reported in Tables 9 and 10, respectively. For each
table, we present the results of the overall meta-analysis and, if the homogeneity test is
rejected, the tests for moderating variables including a jurisdiction's legal origin, accounting
and auditing enforcement regime, congruence between domestic GAAP and IFRS and mode
of IFRS adoption. Further, for the meta-analysis of value relevance (discretionary accruals)
studies, we also present the tests for the moderating variable being the model used to estimate
value relevance (discretionary accruals).

5.1. Meta-analysis of value relevance studies

Table 6 reports the value relevance of book value of equity pre- and post-IFRS
adoption. The overall meta-analysis provides evidence that the value relevance of equity is
highly significant (p b 0.001) during the pre- and post-IFRS period. However, it decreases
after the adoption of IFRS as the mean correlation (r) for the pre-IFRS period accounts for
0.338 and that for the post-IFRS period accounts for 0.290, with two confidence intervals
that do not include negative values. Because the homogeneity test is rejected for the two
periods based on χ 2 (p b 0.01), we conduct additional analysis to reduce heterogeneity and
test whether the variability across results is attributed to our moderating factors.
When studies are classified according to a country's legal origin, the value relevance
of book value of equity generally decreases but remains significant. For example, the rof
common law countries for the pre- IFRS period accounts for 0.401 (z = 8.492) (calculated
qffiffiffiffiffiffiffiffiffiffiffi
as r= S2r =K ) with a confidence interval between 0.308 and 0.493. Under IFRS, ther amounts
to 0.308 (z = 6.516) with a confidence interval between 0.215 and 0.400. Similar results are
noted for Germany. The Scandinavian civil law group shows the r at 0.594 (z = 5.097) and
0.554 (z = 2.312) for the pre- and post-IFRS period, respectively. These results suggest that the
value relevance remains significant, with the lower limit above zero. The French civil law
countries experience a small decline with the r being 0.328 (z = 6.432) and 0.296 (z = 5.349)
for the pre- and post-IFRS period, respectively, with two confidence intervals with lower limits
above zero. These results suggest that irrespective of a country's legal origin, the association
15
Sub-group meta-analysis is not conducted on analysts' forecast studies error proxies since they are the same in
the studies included in our analysis.
K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217 197

between book value of equity and market value remains significant in the post-IFRS period
but its value relevance has declined.
With respect to the moderating effects of the accounting and auditing enforcement
regime and congruence between domestic GAAP and IFRS, there is a decrease in the
value relevance of book value of equity post IFRS adoption for both the high and low
enforcement, absence and divergence groups. For all sub groups, the r is lower in the
post-IFRS period then the pre-IFRS period and the lower limits of the confidence intervals
are all above zero. These results suggest that the decline in the value relevance of the book
value of equity occurs irrespective of the accounting and enforcement regime in place or
the differences between IFRS and the previous domestic GAAP.
Classifying the studies into voluntary and mandatory IFRS adoption, the results show
that the value relevance of book value of equity is significant (p b 0.001) for both
mandatory and voluntary adopters. However, the r decreases from 0.342 (z = 10.910) in
the pre-IFRS period to 0.289 (z = 8.987) in the post-IFRS period for the mandatory
adoption group. In contrast, the r for voluntary adoption studies of 0.252 (pre-IFRS) and
0.327 post-IFRS suggests that the value relevance of book value of equity for voluntary
adopters increases significantly after adoption.
Overall, the results show that the mean correlation ( r), as measured by effect size,
between book value of equity and IFRS adoption is significant (p b 0.01) in the pre-IFRS
period and in the post-IFRS period with the relevance lower in the post IFRS period. The
low levels of explanatory power (ranging between 3.260% and 11.770%) and high levels
of significant χ 2 across the sub-groups indicate that the variation in the degree of
correlations between equity and IFRS adoption is not due to sampling error. Among all the
sub-groups, the value relevance of equity increases for only the voluntary adoption group.
Table 7 reports the meta-analysis results for the value relevance of earnings for the
period preceding and following IFRS adoption. The analysis provides evidence that the
value relevance of earnings is highly significant with the significance increasing after IFRS
adoption. This is evident in the overall meta-analysis with the r for the pre-IFRS period
being 0.250 (z = 8.497) and 0.300 (z = 10.238) post-IFRS.
Testing the moderator effects of the various legal origins shows that for studies within
common law countries, the r is 0.238 (z = 4.185) and 0.309 (z = 5.632) in the pre- and
post-IFRS period, respectively. For French civil law influenced companies the r is 0.166
(z = 4.160) and 0.261 (z = 5.842). For companies in a jurisdiction with a legal origin based
on German civil law, the r is 0.280 (z = 3.909) and 0.153 (z = 2.825); for Scandinavian
civil law firms the r is 0.295 (z = 3.617) and 0.296 (z = 3.731) for the pre-IFRS and
post-IFRS period, respectively, with all associations significant at the 1% level. These
results suggest some variability in the IFRS adoption effects on the value relevance of
earnings according to a country's legal origin. The increased value relevance of earnings
occurs in common law and French law countries.
Investigating accounting and auditing enforcement regimes and congruency between
domestic GAAP and IFRS as moderating factors, we find increasing mean correlations in
the post-relative to the pre-IFRS period, for all sub-groups. Considering accounting and
auditing enforcement, the r is 0.225 (high enforcement group) and 0.222 (low enforcement
group) pre-IFRS and 0.262 (high enforcement) and 0.306 (low enforcement) post-IFRS.
With respect to the comparison of domestic GAAP and IFRS, pre-IFRS the r is 0.230,
198
K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217
Table 6
Meta-analysis of the value relevance of book value of equity pre- and post-IFRS adoption.
Sample Number of Mean Observed Estimated error Percentage Z-statistic 95% confidence χK2 − 1
(N) studies (K) correlation r variance Sr2 variance Se2 explained Se2/Sr2 interval
Pre-IFRS period
Overall meta-analysis 24,416 47 0.338 ⁎⁎⁎ 0.041 0.001 3.670 11.456 0.280; 0.396 1280.158 ⁎⁎⁎
Moderating factors
Common law 8308 14 0.401 ⁎⁎⁎ 0.031 0.001 3.800 8.496 0.308; 0.493 368.265 ⁎⁎⁎
Civ/French 7458 19 0.328 ⁎⁎⁎ 0.049 0.002 4.090 6.432 0.228; 0.428 464.552 ⁎⁎⁎
Civ/German 779 4 0.585 ⁎⁎⁎ 0.052 0.002 4.200 5.097 0.360; 0.818 95.331 ⁎⁎⁎
Civ/Scandinavian 761 6 0.594 ⁎⁎⁎ 0.034 0.003 9.480 7.801 0.444; 0.743 63.263 ⁎⁎⁎
High enforcement 10,294 22 0.427 ⁎⁎⁎ 0.048 0.001 2.930 9.062 0.334; 0.519 751.348 ⁎⁎⁎
Low enforcement 7012 21 0.327 ⁎⁎⁎ 0.034 0.002 6.870 8.052 0.247; 0.407 305.476 ⁎⁎⁎
High absence 10,754 25 0.428 ⁎⁎⁎ 0.035 0.001 4.370 11.376 0.354; 0.502 572.347 ⁎⁎⁎
Low absence 6552 18 0.317 ⁎⁎⁎ 0.054 0.002 4.090 5.785 0.425; 0.210 440.214 ⁎⁎⁎
High divergence 7504 20 0.341 ⁎⁎⁎ 0.058 0.002 3.530 6.283 0.234; 0.447 566.441 ⁎⁎⁎
Low divergence 9802 23 0.421 ⁎⁎⁎ 0.032 0.001 4.900 11.229 0.347; 0.494 469.387 ⁎⁎⁎
Mandatory adoption 23,535 43 0.342 ⁎⁎⁎ 0.042 0.001 3.370 10.910 0.280; 0.403 1274.766 ⁎⁎⁎
Voluntary adoption 881 4 0.252 ⁎⁎⁎ 0.003 0.004 100.00 9.680 0.201; 0.303 2.739
Post-IFRS period
Overall meta-analysis 25,392 47 0.290 ⁎⁎⁎ 0.043 0.001 3.550 9.531 0.230; 0.350 1323.641 ⁎⁎⁎
Moderating factors
Common law 8912 14 0.308 ⁎⁎⁎ 0.031 0.001 4.110 6.516 0.215; 0.400 340.463 ⁎⁎⁎
Civ/French 7430 19 0.296 ⁎⁎⁎ 0.058 0.002 3.640 5.349 0.187; 0.405 522.043 ⁎⁎⁎
Civ/German 1486 4 0.230 ⁎⁎⁎ 0.039 0.002 6.090 2.312 0.035; 0.425 65.679 ⁎⁎⁎

K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217


Civ/Scandinavian 761 6 0.554 ⁎⁎⁎ 0.066 0.004 5.672 5.256 0.347; 0.760 105.767 ⁎⁎⁎
High enforcement 12,288 22 0.363 ⁎⁎⁎ 0.048 0.001 2.760 7.709 0.271; 0.456 798.545 ⁎⁎⁎
Low enforcement 6301 22 0.197 ⁎⁎⁎ 0.025 0.003 11.910 5.636 0.128; 0.266 176.386 ⁎⁎⁎
High absence 10,181 25 0.347 ⁎⁎⁎ 0.042 0.002 4.540 8.490 0.267; 0.427 551.145 ⁎⁎⁎
Low absence 8408 18 0.259 ⁎⁎⁎ 0.046 0.002 3.760 4.935 0.156; 0.361 478.704 ⁎⁎⁎
High divergence 9560 20 0.275 ⁎⁎⁎ 0.055 0.002 3.250 5.245 0.172; 0.378 616.087 ⁎⁎⁎
Low divergence 9029 23 0.341 ⁎⁎⁎ 0.037 0.002 5.400 8.539 0.263; 0.419 425.594 ⁎⁎⁎
Mandatory adoption 24,771 43 0.289 ⁎⁎⁎ 0.044 0.001 3.260 8.987 0.226; 0.352 1318.739 ⁎⁎⁎
Voluntary adoption 621 4 0.327 ⁎⁎⁎ 0.003 0.005 100.000 11.591 0.271; 0.382 1.612
Notes: Study (K) refers to the number of independent samples; Sample (N) refers to the number of observations; Civ refers to civil law.
⁎ p b .05.
⁎⁎ p b .01.
⁎⁎⁎ p b .001.

199
200
K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217
Table 7
Meta-analysis of the value relevance of earnings pre- and post-IFRS adoption.
Sample Number of Mean Observed Estimated error Percentage Z-statistic 95% confidence χK2 − 1
(N) studies (K) correlation r variance Sr2 variance Se2 explained Se2/Sr2 interval
Pre-IFRS period
Overall meta-analysis 36,874 68 0.250 ⁎⁎⁎ 0.059 0.001 2.740 8.497 0.192; 0.308 2480.740 ⁎⁎⁎
Moderating factors
Common law 13,682 20 0.238 ⁎⁎⁎ 0.064 0.001 2.070 4.185 0.126; 0.349 968.394 ⁎⁎⁎
Civ/French 11,678 26 0.166 ⁎⁎⁎ 0.041 0.002 5.070 4.160 0.087; 0.244 512.829 ⁎⁎⁎
Civ/German 3731 9 0.280 ⁎⁎⁎ 0.046 0.002 4.440 3.909 0.139; 0.420 202.858 ⁎⁎⁎
Civ/Scandinavian 1069 9 0.295 ⁎⁎⁎ 0.060 0.007 11.710 3.617 0.135; 0.455 76.845 ⁎⁎⁎
High enforcement 16,283 34 0.225 ⁎⁎⁎ 0.066 0.002 2.820 5.087 0.138; 0.312 1203.592 ⁎⁎⁎
Low enforcement 11,925 29 0.222 ⁎⁎⁎ 0.044 0.002 4.940 5.684 0.145; 0.299 587.295 ⁎⁎⁎
High absence 12,455 25 0.230 ⁎⁎⁎ 0.042 0.002 4.320 4.938 0.123; 0.284 578.075 ⁎⁎⁎
Low absence 15,753 38 0.240 ⁎⁎⁎ 0.068 0.002 3.140 5.664 0.156; 0.323 1210.530 ⁎⁎⁎
High divergence 12,869 32 0.175 ⁎⁎⁎ 0.064 0.002 3.630 3.913 0.087; 0.263 881.685 ⁎⁎⁎
Low divergence 15,339 31 0.264 ⁎⁎⁎ 0.047 0.002 3.670 4.207 0.188; 0.341 845.603 ⁎⁎⁎
Mandatory adoption 34,783 60 0.246 ⁎⁎⁎ 0.061 0.001 2.470 7.676 0.183; 0.308 2429.572 ⁎⁎⁎
Voluntary adoption 2091 8 0.324 ⁎⁎⁎ 0.011 0.003 28.290 8.829 0.252; 0.396 28.277 ⁎⁎⁎
Price model 24,083 47 0.312 ⁎⁎⁎ 0.072 0.001 2.190 7.951 0.235; 0.389 2142.236 ⁎⁎⁎
Return model 12,791 21 0.134 ⁎⁎⁎ 0.013 0.001 11.910 5.341 0.085; 0.183 176.263 ⁎⁎⁎
Post-IFRS period
Overall meta-analysis 38,521 68 0.300 ⁎⁎⁎ 0.058 0.001 2.500 10.238 0.242; 0.357 2718.137 ⁎⁎⁎
Moderating factors
Common law 14,141 20 0.309 ⁎⁎⁎ 0.060 0.001 1.920 5.632 0.201; 0.416 1040.742 ⁎⁎⁎
Civ/French 11,644 26 0.261 ⁎⁎⁎ 0.052 0.002 3.700 5.824 0.173; 0.349 702.809 ⁎⁎⁎
0.153 ⁎⁎⁎ 134.760 ⁎⁎⁎

K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217


Civ/German 4864 9 0.026 0.002 6.680 2.825 0.046; 0.259
Civ/Scandinavian 1069 9 0.296 ⁎⁎⁎ 0.056 0.007 12.400 3.731 0.140; 0.451 72.584 ⁎⁎⁎
High enforcement 19,202 34 0.262 ⁎⁎⁎ 0.053 0.001 2.770 6.499 0.183; 0.341 1225.397 ⁎⁎⁎
Low enforcement 10,954 29 0.306 ⁎⁎⁎ 0.053 0.002 4.050 7.132 0.390; 0.220 715.427 ⁎⁎⁎
High absence 11,627 25 0.280 ⁎⁎⁎ 0.056 0.002 3.250 5.915 0.187; 0.373 768.920 ⁎⁎⁎
Low absence 18,529 38 0.277 ⁎⁎⁎ 0.054 0.002 3.200 7.314 0.187; 0.373 768.920 ⁎⁎⁎
High divergence 15,491 32 0.235 ⁎⁎⁎ 0.049 0.002 3.770 6.029 0.159; 0.312 849.655 ⁎⁎⁎
Low divergence 14,665 31 0.323 ⁎⁎⁎ 0.057 0.002 2.930 7.488 0.238; 0.408 1057.556 ⁎⁎⁎
Mandatory adoption 36,675 60 0.301 ⁎⁎⁎ 0.059 0.001 2.270 9.543 0.239; 0.362 2643.213 ⁎⁎⁎
Voluntary adoption 1846 8 0.285 ⁎⁎⁎ 0.034 0.004 10.590 4.347 0.156; 0.414 75.561 ⁎⁎⁎
Price model 25,392 47 0.392 ⁎⁎⁎ 0.050 0.001 2.640 11.997 0.114; 0.328 1782.434 ⁎⁎⁎
Return model 13,129 21 0.121 ⁎⁎⁎ 0.026 0.001 5.970 3.461 ⁎,⁎⁎ 0.052; 0.190 351.680 ⁎⁎⁎
Notes: Study (K) refers to the number of independent samples; Sample (N) refers to the number of observations.
⁎ p b .05.
⁎⁎ p b .01.
⁎⁎⁎ p b .001.

201
202
K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217
Table 8
Equality of means tests for the association between book value of equity, earnings and market value of equity pre- and post-IFRS adoption.
Pre-IFRS Post-IFRS
Sample Mean Variance Sample Mean Variance Student-T
Panel A: Book value of equity
Overall meta-analysis 24,416 0.338 0.041 25,392 0.290 0.043 − 26.124 ⁎⁎⁎
Moderating factors
Common law 8308 0.401 0.031 8912 0.308 0.031 − 34.633 ⁎⁎⁎
Civ/French 7458 0.328 0.049 7430 0.296 0.058 − 8.440 ⁎⁎⁎
Civ/German 779 0.585 0.052 1486 0.230 0.039 − 38.475 ⁎⁎⁎
Civ/Scandinavian 761 0.594 0.034 761 0.554 0.066 − 3.487 ⁎⁎⁎
High enforcement 10,294 0.427 0.048 12,288 0.363 0.048 − 14.759 ⁎⁎⁎
Low enforcement 7012 0.327 0.034 6301 0.197 0.025 − 31.512 ⁎⁎⁎
High absence 10,754 0.428 0.035 10,181 0.347 0.042 − 29.889 ⁎⁎⁎
Low absence 6552 0.317 0.054 8408 0.259 0.046 − 15.817 ⁎⁎⁎
High divergence 7504 0.341 0.058 9560 0.275 0.055 − 18.031 ⁎⁎⁎
Low divergence 9802 0.421 0.032 9029 0.341 0.037 − 29.569 ⁎⁎⁎
Mandatory adoption 23,535 0.342 0.042 24,771 0.289 0.044 − 23.302 ⁎⁎⁎
Voluntary adoption 881 0.252 0.003 621 0.327 0.003 26.116 ⁎⁎⁎
Panel B: Earnings
Overall meta-analysis 36,874 0.250 0.059 38,521 0.300 0.058 28.376 ⁎⁎⁎
Moderating factor
Common law 13,682 0.238 0.064 14,141 0.309 0.060 23.783 ⁎⁎⁎
Civ/French 11,678 0.166 0.041 11,644 0.261 0.052 33.641 ⁎⁎⁎
− 31.332 ⁎⁎⁎

K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217


Civ/German 3731 0.280 0.046 4864 0.153 0.026
Civ/Scandinavian 1069 0.295 0.060 1069 0.296 0.056 0.095
High enforcement 16,283 0.225 ⁎⁎⁎ 0.066 19,202 0.262 ⁎⁎⁎ 0.053 14.302 ⁎⁎⁎
Low enforcement 11,925 0.222 ⁎⁎⁎ 0.044 10,954 0.306 ⁎⁎⁎ 0.053 28.876 ⁎⁎⁎
High absence 12,455 0.230 ⁎⁎⁎ 0.042 11,627 0.280 ⁎⁎⁎ 0.056 12.412 ⁎⁎⁎
Low absence 15,753 0.240 ⁎⁎⁎ 0.068 18,529 0.277 ⁎⁎⁎ 0.054 13.887 ⁎⁎⁎
High divergence 12,869 0.175 ⁎⁎⁎ 0.064 15,491 0.235 ⁎⁎⁎ 0.049 21.293 ⁎⁎⁎
Low divergence 15,339 0.264 ⁎⁎⁎ 0.047 14,665 0.323 ⁎⁎⁎ 0.057 22.426 ⁎⁎⁎
Mandatory adoption 34,783 0.246 0.061 36,675 0.301 0.059 30.006 ⁎⁎⁎
Voluntary adoption 2091 0.324 0.011 1846 0.285 0.034 − 8.271 ⁎⁎⁎
Price model 24,083 0.312 0.072 25,392 0.392 0.050 36.096 ⁎⁎⁎
Return model 12,791 0.134 0.013 13,129 0.121 0.026 − 7.476 ⁎⁎⁎
Notes: Sample refers to the number of observations.
⁎ p b .05.
⁎⁎ p b .01.
⁎⁎⁎ p b .001.

203
204
Table 9
Meta-analysis of discretionary accrual studies.

K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217


Sample Number of Mean Observed Estimated error Percentage Z-statistic 95% confidence χK2 − 1
(N) studies (K) correlationr variance Sr2 variance Se2 explained Se2/Sr2 interval
Overall meta-analysis 130,705 29 0.001 0.002 0.000 13.999 0.224 − 0.012; 0.016 207.320 ⁎⁎⁎
Moderating factors
Common law 7121 8 0.052 0.009 0.001 12.830 1.580 − 0.012; 0.116 62.372 ⁎⁎⁎
Civ/French 6993 13 0.029 0.009 0.002 20.500 1.112 − 0.022; 0.081 63.405 ⁎⁎⁎
Civ/German 2868 4 0.013 0.005 0.001 25.382 0.356 − 0.059; 0.850 15.759 ⁎⁎⁎
Civ/Scandinavian 147 2 0.021 ⁎ 0.000 0.013 100.000 2.090 0.001; 0.040 0.029
High enforcement 9160 11 0.059 ⁎ 0.011 0.001 10.410 1.826 − 0.004; 0.122 105.718 ⁎⁎⁎
Low enforcement 7969 16 0.009 0.004 0.002 54.260 0.638 − 0.020; 0.039 29.485 ⁎⁎⁎
High absence 8094 13 0.040 0.007 0.002 23.510 1.761 − 0.004; 0.085 42.535 ⁎⁎⁎
Low absence 9035 14 0.032 0.009 0.001 15.630 1.211 − 0.019; 0.084 89.593 ⁎⁎⁎
High divergence 11,175 12 0.009 0.004 0.001 26.770 0.523 − 0.026; 0.045 44.818 ⁎⁎⁎
Low divergence 5954 15 0.085 ⁎⁎⁎ 0.013 0.002 19.090 2.912 0.028; 0.143 78.591 ⁎⁎⁎
Mandatory adoption 124,884 24 0.001 0.002 0.000 12.380 0.169 − 0.014;0.017 193.810 ⁎⁎⁎
Voluntary adoption 5816 5 0.008 0.002 0.001 37.340 0.369 − 0.034; 0.049 13.389 ⁎⁎⁎
Discretionary accrual model
Jones (1991) 12,231 6 − 0.047 ⁎ 0.002 0.000 17.960 − 2.231 − 0.089; − 0.005 33.414 ⁎⁎⁎
Larcker and Richardson (2004) 987 11 0.162 ⁎⁎ 0.024 0.010 42.950 3.431 0.069; 0.254 25.612 ⁎⁎⁎
Jeanjean and Stolowy (2008) 5051 3 0.115 ⁎⁎⁎ 0.001 0.000 39.750 5.245 0.072; 0.158 7.546
Ball and Shivakumar (2005) 2168 2 − 0.014 0.004 0.001 24.689 − 0.333 − 0.099; 0.070 8.100 ⁎⁎⁎
Barth et al. (2008) 4594 3 − 0.008 0.001 0.000 64.230 − 0.456 − 0.044; 0.027 4.670 ⁎⁎⁎
Notes: Study (K) refers to the number of independent samples; Sample (N) refers to the number of observations.
⁎ p b .05.
⁎⁎ p b .01.
⁎⁎⁎ p b .001.
K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217
Table 10
Meta-analysis of analysts' earnings forecast accuracy studies.
Sample Number of Mean correlation r Observed Estimated error Percentage Z-statistic 95% confidence χK2 − 1
(N) studies (K) variance Sr2 variance Se2 explained Se2/Sr2 interval
Overall meta-analysis 87,857 20 − 0.034 ⁎⁎⁎ 0.001 0.000 20.550 − 4.757 − 0.049; − 0.021 97.336 ⁎⁎⁎
Moderating factors
Common law 7895 6 − 0.063 ⁎⁎⁎ 0.003 0.001 28.230 − 2.976 − 0.104; − 0.021 21.256 ⁎⁎⁎
Civ/French 3884 2 0.003 0.001 0.000 42.430 0.137 − 0.044; 0.051 4.713 ⁎⁎⁎
Civ/German 6108 3 − 0.061 ⁎⁎⁎ 0.001 0.000 40.280 − 3.021 − 0.100; − 0.021 7.447 ⁎⁎⁎
High enforcement 5349 5 − 0.064 ⁎⁎ 0.040 0.001 22.990 − 2.273 − 0.008; − 0.120 21.753 ⁎⁎⁎
Low enforcement 13,443 6 − 0.036 ⁎⁎ 0.001 0.000 28.720 − 2.338 − 0.069; − 0.006 20.891 ⁎⁎⁎
High absence 5349 5 − 0.064 ⁎⁎ 0.004 0.001 22.990 − 2.273 − 0.120: − 0.008 21.753 ⁎⁎⁎
Low absence 13,443 6 − 0.037 ⁎⁎ 0.001 0.000 28.720 − 2.338 − 0.069; − 0.006 20.891 ⁎⁎⁎
High divergence 14,130 5 − 0.040 ⁎⁎⁎ 0.001 0.000 40.800 − 3.066 − 0.066; − 0.014 12.256 ⁎⁎⁎
Low divergence 4662 6 − 0.060 ⁎ 0.007 0.001 18.860 − 1.793 − 0.126; 0.005 31.813 ⁎⁎⁎
Mandatory adoption 64,159 12 − 0.027 0.000 0.000 25.950 − 3.514 ⁎⁎⁎ − 0.042; − 0.012 46.234 ⁎⁎⁎
Voluntary adoption 23,698 8 − 0.057 0.001 0.000 23.120 − 4.240 ⁎⁎⁎ − 0.083; − 0.031 34.601 ⁎⁎⁎
Notes: Study (K) refers to the number of independent samples; Sample (N) refers to the number of observations.
⁎ p b .05.
⁎⁎ p b .01.
⁎⁎⁎ p b .001.

205
206 K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217

0.240, 0.175 and 0.264 for the high absence, low absence, high divergence and low
divergence groups, respectively. Post-IFRS, the r increases for each of these sub-groups as
follows: 0.280, 0.277, 0.235 and 0.323, respectively. This suggests that IFRS benefits
accrue across all groups.
With respect to the mode of adoption (voluntary versus mandatory), for mandatory
adopters the r is 0.246 during the pre-IFRS period and 0.301 for the post-IFRS period. For
the voluntary adopters, the r is 0.324 during pre-IFRS period and 0.285 during the
post-IFRS period, suggesting that the increased value relevance of earnings post-IFRS is
not homogenous for voluntary and mandatory adopters. The increased value relevance is
attributable to mandatory adoption rather than voluntary adoption. A model specification
sub-group meta-analysis (price versus return models) is also conducted and it reveals
important results. Meta-analyzing the price model studies, we find an increase in the value
relevance of earnings as the mean correlation moves from 0.312 (z = 7.951) for the
pre-IFRS period to 0.392 (z = 11.997) for the post-IFRS period. We find a decrease in the
value relevance of earnings for return model studies with the mean correlations being 0.134
(z = 5.341) and 0.121 (z = 3.461) for the pre- and post-IFRS adoption period, respectively.
The results in Tables 6 and 7 do not test the equality of the means, although they report
differences in mean correlations r between the pre- and post-IFRS period. The tests for the
equality of means of the value relevance of book value of equity, detailed in Table 8 Panel A,
show a significant decrease following IFRS adoption (from 0.338 to 0.290, t = − 26.124).
This decrease is evident across all moderating factors — legal origin, accounting and auditing
enforcement, the congruency between domestic GAAP and IFRS — except for the mode
of adoption. The mean effect size significantly increases for firms adopting IFRS voluntarily
(from 0.252 to 0.327, t = 26.116).
In Panel B of Table 8, the overall meta-analysis results show that IFRS adoption is
associated with an increase in earnings value relevance (from 0.250 to 0.300, t = 28.376).
This significant increase is evident for all legal systems except for German civil law where
the value relevance of earnings declines (from 0.280 to 0.153, t = − 31.332) and the
Scandinavian civil law where the difference is insignificant (from 0.295 to 0.296, t = 0.095).
The significant increase is also evident for all groupings of the strength of accounting and
auditing enforcement and the extent of congruency between domestic GAAP and IFRS. In
the enforcement, absence and divergence sub-groups, the mean correlation is lower in the
pre-IFRS period than the post-IFRS period. The analysis moderating for mandatory and
voluntary adoption reveals that mandatory adoption increases the value relevance of earnings
(from 0.246 to 0.301, t = 30.006), whereas voluntary adoption reduces the value relevance
of reported earnings (from 0.324 to 0.285, t = − 8.271). It seems also that the model
specification plays an important role in determining the effect of IFRS adoption on earnings'
value relevance. The meta-analysis of price model studies shows a significant increase in
earnings value relevance subsequent to IFRS adoption (from 0.312 to 0.392, t = 36.096),
whereas the analysis of return models finds a significant decrease in the value relevance of
reported earnings (from 0.134 to 0.121, t = − 7.476).
Our results do not support Hypothesis 1(a) but do support Hypothesis 1(b). The
association between book value of equity and market value of equity value has not
improved following the adoption of IFRS (Hypothesis 1(a)). However, we do find that the
association between earnings and market value of equity (Hypothesis 1(b)) improves
K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217 207

following the adoption of IFRS. These associations are moderated by countries' legal
origins, the mode of adoption of IFRS being voluntary or mandatory and the model
specification for tests of earnings value relevance.

5.2. Meta-analysis of discretionary accrual studies

Table 9 presents the results of meta-analyzing the association between IFRS adoption
and discretionary accruals. The overall meta-analysis of 29 (n = 130,705) studies does not
suggest that discretionary accruals reduce significantly post-IFRS adoption. We find r
accounts for 0.001 (z = 0.224) and the confidence interval is between − 0.012 and 0.016.
When studies are classified according to the legal origin, the association remains
insignificant with a near zero association for French and German civil law countries with
r of 0.029 and 0.013, respectively. Similarly, the IFRS adoption does not contribute to
the reduction of discretionary accruals because the mean correlation accounts for 0.052
(z = 1.580). Only Scandinavian civil law countries report a significant (r ¼ 0:021); however,
there are only two studies within Scandinavian countries and therefore this interpretation
warrants careful consideration.
The meta-analysis of the sub-groups shows insignificant associations for all sub-groups
except for high enforcement and low divergence. These sub-groups were formed according
to the strength of accounting and auditing enforcement and the congruency between
domestic GAAP and IFRS. For the latter two groups, the r is 0.059 and 0.085, respectively.
The results also show that the association remains insignificant, with a near zero association,
when studies are sub-grouped according to voluntary or mandatory IFRS adoption studies.
The final moderating variable effect we examine is whether the proxy used to measure
discretionary accruals impacts the association between the discretionary accruals and IFRS
adoption. The studies are grouped according to the discretionary accruals estimation model
being the Jones (1991), Barth et al. (2008), Ball and Shivakumar (2005), Jeanjean and Stolowy
(2008), or Larcker and Richardson (2004) model. We use studies employing a discretionary
accrual measure based on the first three models, with r being − 0.047 (z = − 2.231), − 0.008
(z = − 0.456) and − 0.014 (z = − 0.333), respectively. In contrast, an analysis of studies
employing a discretionary accrual measure based on Larcker and Richardson (2004) finds a
positive r of 0.162 (z = 3.431) with a confidence interval between 0.069 and 0.254. Using the
earnings scaled by total assets as proxy for accruals (Jeanjean & Stolowy, 2008), suggests that
the sub-group meta-analysis exhibit a significant increase in discretionary accruals with the
mean correlation accounting for 0.115 (z = 5.245). The differences in results are due to
researchers' use of the models to assess the level of earnings management.
Overall, findings do not support H2 predicting a significant decrease in discretionary
accruals following the adoption of IFRS. It is plausible that due to their legal origin, some
countries' accounting systems (e.g., French, German) are too discrete and remain heavily
influenced by taxation rules (Daske, 2006). Additionally, different methodologies used to
measure earnings management may limit our findings. For example, absolute discretionary
accruals treat both income-decreasing and income-increasing accruals equally, and higher
absolute discretionary accruals indicate lower earnings quality (Gul, Fung, & Jaggi, 2009).
Further, studies do not distinguish between firms that move from income increasing to
income decreasing and vice versa and firms that adopt the same accounting policy (income
208 K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217

increasing or income decreasing) before and after the adoption of IFRS but use a more
conservative or aggressive accounting policy.

5.3. Meta-analysis of analysts' earnings forecast accuracy studies

Table 10 reports the results of meta-analyzing 14 studies, yielding 20 independent


samples, of the effect of IFRS adoption on analysts' earnings forecast accuracy. We find a
significant negative association with a r of − 0.034 (z = − 4.757) and a confidence interval
between − 0.049 and − 0.021 with a low degree of homogeneity because the sampling error
variance accounts for nearly 20% of the total variance. Testing for moderator effects
associated with the legal system, we identify a common law group, a German civil law
group and French civil law group. The common law country group has a r of − 0.063
(z = − 2.976), a confidence interval between − 0.104 and − 0.021, and a moderate degree
of homogeneity with the sampling error variance accounting for 28% of the observed
variance. For the German civil law group, the adoption of IFRS has also contributed to
the enhancement of analysts' forecasts accuracy with a mean correlation of r = − 0.061
(z = − 3.021). For the French civil law group, there is a near-zero relationship between
IFRS adoption and analysts' earnings forecast accuracy with a mean correlation of 0.003.
Sub-group meta-analysis reveals a significant negative association for all sub-groupings.
The analysis is produced according to the strength of the accounting and auditing
enforcement and the congruency between domestic GAAP and IFRS The sampling error is
low, with the sampling error variance being less than 28% of the observe variance for all
groups except the high divergence group. Finally, the sub-group meta-analysis according to
the mode of the adoption of IFRS finds the voluntary adoption group has a mean correlation
− 0.057 (z = − 0.057) and low degree of homogeneity with the sampling error variance
being 23% of the observed variance. The mandatory adoption group has a mean correlation
of − 0.027 with a confidence interval between − 0.042 and − 0.012 and sampling error
variance of 26% of the observed variance, suggesting a low degree of homogeneity.
In summary, the results of the overall meta-analysis and sub-group meta-analysis suggest
that IFRS adoption is associated with an improvement in analysts' earnings forecast accuracy.
Such findings support H3 stating that analysts' forecast accuracy improves with IFRS adoption.
The implication is that IFRS recognition, measurement and disclosure requirements have
facilitated financial analysts' ability to predict future earnings. It should be noted that financial
analysts represent sophisticated users of financial statements compared to other users such
as less-informed investors and such sophistication assists analysts to interpret and compare
financial information prepared in accordance with IFRS and hence improves firms'
information environments.

5.4. Additional analysis

Literature reviews, especially quantitative reviews such as meta-analysis, have the


potential to be affected by publication bias (Jennions & Moller, 2002a,b; Moller &
Jennions, 2001). Our meta-analysis includes both published (i.e. appearing in a journal)
and unpublished studies (i.e. available on SSRN). Including only published studies
suggests higher quality because the papers have been through a review process, but it has a
K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217 209

potential weakness. Unpublished studies might have smaller effects than published papers
if editors reject ‘no results’ papers. Consequently, there may be a bias present in published
papers because only studies with type one errors appear in print (Hay et al., 2006). Hunter
et al. (1982, p.30) suggest that most of the difference between the average effect size of the
published and unpublished studies is due to differences in the methodological quality.
Consequently, we sub-divide the overall sample into published versus unpublished studies
to assess if publication status is a moderating factor. 16 For the value relevance of book
value of equity studies, the r decreases from 0.344 (z = 10.505) to 0.298 (z = 8.892) for
published studies and from 0.303 to 0.231 for unpublished studies in the pre- and
post-IFRS periods, respectively. This suggests that publication status has not moderated
the IFRS adoption effect of a decline in the value relevance of the book value of equity.
Investigating the effect of publication status on the value relevance of earnings finds that
the value relevance increases for both the published and unpublished group of studies. The
r move from 0.257 (z = 7.674) pre-IFRS period to 0.299 (z = 9.208) post-IFRS for the
published group and 0.220 (z = 4.447) pre-IFRS to 0.304 (z = 3.710) post-IFRS for the
unpublished studies. These results suggest that publication status is not a moderating factor.
Further meta-analytic tests (unreported) are conducted for published studies according
to the quality of the journal in which the article appears. 17 For the value relevance of book
value of equity and IFRS adoption, studies grouped by ranked journals show a significant
decrease in the association with the mean correlation for the pre-adoption period being
0.328 (z = 8.642) and 0.275 (z = 6.952) for the post-adoption period. A similar change is
observed for other journals, albeit with lower magnitude. For other journals, the mean
correlation pre-IFRS is 0.356 (z = 8.051) and decreases to 0.324 (z = 8.197) post-IFRS.
With respect to earning value relevance, there is also a significant increase in the mean
correlation for both ranked and other journals in post-IFRS relative to pre-IFRS with the
association strengthening more for the ranked journal sub-group.
While we have captured a moderating effect for publication statuses for the sample of
studies identified, our sample is not capturing unreported studies. The selective publication
of articles (either in a journal, an SSRN, or other web pages) shows results over those that
show no results, and the consequential potential for upward biasing of the mean effect size
is referred to as the ‘file drawer problem’. Rosenthal (1979) proposes a method to compute
a ‘fail-safe’ N statistic indicating the number of unpublished (i.e. unreported) papers
required to influence the conclusions drawn from meta-analysis. Orwin (1983) adapted his
approach to develop a simpler method of calculating the ‘file drawer’ number of papers. 18
Using a 0.20 criterion, we find that our results are robust to such publication bias. For

16
This additional analysis is conducted for the value relevance studies only given that our sample includes only
one unpublished study investigating the association between IFRS adoption and discretionary accruals (Guenther
et al., 2009) and one unpublished study on IFRS adoption and analysts forecast errors (Jönsson et al., 2012).
17
Ranked journals are indexed in Elsevier, Springer, Francis Taylor and Wiley.
18
This method involves estimating the fail-safe N being the number of unreported studies with insignificant
results required to reduce the mean effect size to a specified criterion. The fail-safe N is calculated using Eq. (6).
h i
ESk
K 0 ¼ K ES 0
−1 where K0 Fail-safe N or the number of non significant, unpublished studies, K number of studies
included in the meta-analysis, ESk effect size of studies included in the analysis, and ESo the criterion effect size
level which will reduce the effect size.
210 K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217

overall value relevance of book value of equity and earnings, the fail-safe Ns are 33 and 17
for the pre-IFRS and 22 and 34 for the post-IFRS periods, respectively. For analysts'
forecast accuracy, the relevant statistic is 24, suggesting that our results are not affected by
file drawer problem. For discretionary accruals, the mean effect size is not significant, so
we do not compute the fail-safe N.
Van der Meulen et al. (2007) suggest that the returns earning regression does not take
into account how market prices react to positive and negative earnings. There is mixed
evidence regarding the relationship between stock returns and earnings. This may be
because authors do not distinguish between good news and bad news firms when they
address the value relevance question using this model. To test for such a moderating
variable, we conduct further sensitivity analysis to complement the results reported in
Table 7. We meta-analyze the studies that group their samples into good news and bad
news sub-samples (Bartov et al., 2005; Hung & Subramanyam, 2007; Iatridis, 2010; Jarva
& Lantto, in press; Van der Meulen et al., 2007). We find mixed evidence for the analysis
of the bad news group. However, the meta-analysis of the three studies (Bartov et al., 2005;
Iatridis, 2010; Jarva & Lantto, in press) that examine good news firms suggests a significant
decrease in the association between earnings and returns with the mean correlation in the
pre-adoption period being 0.183 (z = 3.988) with a confidence interval between 0.093 and
0.273 compared to a mean correlation of 0.122 (z = 3.475) with a confidence interval
between 0.053 and 0.190 in the post-adoption period. Hence, such results suggest that IFRS
may incorporate good news into income in a less timely manner than domestic GAAP; that is,
IFRS income is more conditionally conservative.

6. Summary and concluding remarks

The globalization of accounting standards represents one of the most significant


accounting regulatory changes to occur. While IFRS adoption and domestic GAAP
convergence with IFRS suggest that IFRS is a high quality set of accounting standards, the
economic consequences of this change are still debated. Our paper contributes to this
debate by reviewing and meta-analyzing a set of empirical studies dealing with financial
reporting effects of IFRS adoption, namely the value relevance of book value of equity and
earnings and level of discretionary accruals, and a capital market effect being analysts'
earnings forecast accuracy. In doing so, our study uses a body of literature to quantitatively
test the general assumption made by regulators and standard setters that IFRS adoption
improves the usefulness of externally-focused accounting information provided for decision-
making. We also test whether the financial reporting and capital market IFRS adoption effects
are moderated by a number of factors including a country's legal system origin, enforcement
regime, congruency between domestic GAAP and IFRS, research design choices and the
imperative for adopting IFRS (i.e., voluntary or mandatory).
Our results show that the value relevance of book value of equity and earnings are
statistically significant in both pre- and post-IFRS periods and the association is affected by
legal origin, accounting and auditing enforcement, congruency between domestic GAAP
and IFRS, and mode of adoption (voluntary versus mandatory). While we find that the
overall value relevance of equity decreases, the decrease is more significant in common
K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217 211

law and Germany law countries. On the other hand, for firms voluntarily adopting IFRS,
the value relevance of equity increases.
Earnings' value relevance increases in the post-IFRS adoption period, particularly with
respect to price model studies, when reported earnings become more correlated with
market prices. However, the adoption of IFRS is not associated with a reduction in
discretionary accruals. The exception to this is when the Larcker and Richardson (2004)
model and earnings scaled by total assets are used to measure discretionary accruals where
IFRS adoption is found to be associated with an increase in the level of discretionary
accruals. The inconsistent results in the extant literature regarding the association between
discretionary accrual and IFRS adoption are likely to be due the methodology used to
measure discretionary accruals. In fact, empirical studies treat income-decreasing and
income-increasing accruals equally by computing the absolute values of such variables.
Therefore, they fail to capture the real effect of IFRS adoption on earnings management.
Finally, findings show that the adoption of IFRS significantly contributes to an improvement
in analysts' earnings forecast accuracy. Our statistical analysis supports the majority of studies
that make such an association. This result indicates that IFRS adoption provides analysts with
more useful information regarding firms' investment and financing activities that has in turn
contributed to the predictability of earnings among such sophisticated financial statements'
users.
Overall, our results suggest that IFRS adoption may benefit a firm's information
environment through its effect on sophisticated users of financial statements (financial
analysts). The findings in our study have practical value for investors, researchers and
standard setters. With respect to investors (who frequently rely on analysts' earnings forecasts
for decision-making), our results suggest that earnings are more value relevant under IFRS than
under domestic GAAP. Financial statements prepared under IFRS assist financial analysts to
more accurately forecast earnings and therefore investors can have more confidence in these
forecasts. Further research should be undertaken to explore why these earnings have enhanced
relevance.
With respect to researchers, our study provides a quantitative analysis of a body of
empirical work investigating the economic consequences of IFRS adoption. It also
suggests that the use of absolute discretionary accruals to study the effect of the switch to
IFRS on earnings management constitutes a biased measure. Therefore we suggest that
future empirical studies consider classifying firms according to whether they: 1) move
from aggressive (income increasing) to conservative accounting policy (income decreasing);
2) move from conservative (income decreasing) to aggressive accounting policy (income
increasing); 3) remain conservative with more income deceasing strategy; 4) remain
conservative with less income deceasing strategy; 5) remain aggressive with more income
increasing strategy; and 6) remain aggressive with less income increasing strategy. This
kind of analysis can better capture the real effect of IFRS adoption on earnings management.
Finally, for accounting standards setters and policymakers intending to adopt IFRS, our
results suggest that the benefits of such adoption may exceed the costs if only there is a real
commitment towards transparency and strict enforcement.
We recognize that our meta-analysis does not explore all of the financial reporting and
capital market IFRS adoption effects and may exclude relevant studies. However, it is a
representative sample and as the literature investigating this important topic expands,
212 K. Ahmed et al. / The International Journal of Accounting 48 (2013) 173–217

similar analyses can be conducted to calibrate our initial findings. Further studies can
determine if the associations identified fade with time and meta-analyze other financial
reporting and capital market effects should a body of studies display inconsistent results.
Further, our study may not be capturing all moderator effects as is evident from high level
of remaining heterogeneity. Other moderating factors that can influence the financial
reporting quality consequences of IFRS adoption include a country's macroeconomic and
financial system, the motivation for adopting IFRS including preparer incentives (Ramanna
& Sletten, 2011), the role of the accounting profession, ownership concentration, and the
strength of corporate governance. However, due to lack of information, we could not reduce
the high level of heterogeneity remaining in observed variances.

Acknowledgments

We wish to thank conference participants at the 2012 Annual Meetings of the European
Accounting Association held in Ljubljana, Accounting and Finance Association of Australia
and New Zealand in Melbourne, and the American Accounting Association in Washington DC;
we would also like to thank seminar participants at Deakin University, Griffith University, La
Trobe University and Monash University, and Ahsan Habib, Isho Tama-Sweet, Majela Percy,
and Yannis Tsalavoutas for their constructive comments and suggestions.

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