Product market competition, stock price informativeness, and IFRS adoption: Evidence from Europe

Authors

Jing Wang
Wei Li
Arno Forst, The University of Texas Rio Grande ValleyFollow

Document Type

Article

Publication Date

9-25-2020

Abstract

This study examines whether and how policy changes that aim to improve market efficiency, specifically the mandatory adoption of International Financial Reporting Standards (IFRS), influence the relation between product market competition and stock price informativeness. Using a sample of European firms, we find a negative association between product market competition and stock price informativeness as evidenced by larger (smaller) stock price changes surrounding earnings announcements for firms facing more (less) product market competition. These findings are consistent with prior studies examining the U.S. capital market. We further find that IFRS adoption alleviates the negative association. This positive effect is more pronounced among firms domiciled in countries with stronger legal enforcement and among smaller firms. Our results provide insights into the interrelation between product and capital markets in the European setting. More importantly, our results highlight the importance of policy changes, which aim to improve market efficiency, in influencing the relation between the two markets and document the benefit of IFRS adoption in mitigating the negative competition-informativeness relation.

Comments

© 2020, Springer Nature. Original published version available at https://doi.org/10.1007/s11156-020-00933-6

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Recommended Citation

Wang, J., Li, W. & Forst, A. Product market competition, stock price informativeness, and IFRS adoption: evidence from Europe. Rev Quant Finan Acc (2020). https://doi.org/10.1007/s11156-020-00933-6

Publication Title

Review of Quantitative Finance and Accounting

DOI

10.1007/s11156-020-00933-6