ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

A Study on the Relevance of IFRS to the Firm Value －Focusing on the Early Adopters－

  • Hae-Dong Choi Korea Water Resources Corporation

Asian Tax Journal Vol. 13 No. 2 (2012), pp. 297-325

Abstract

The purpose of this paper is to inquire empirically into whether the International Financial Reporting Standards(IFRS) are more excellent than the former Korean accounting standards(KGAAP)in stock price explanation by using Ohlson(1995) Model and Feltham and Ohlson(1995)Model ,respectively, through the cases of the enterprises which adopted IFRS earlier over the year 2009 and 2010. In case an enterprise makes a public announcement of financial statements by applying IFRS, it must publicly announce not only the financial statements for the proper fiscal year but it also must officially announce the financial statements for the very previous fiscal year making comparisons through their conversion based on IFRS, so it's possible to directly compare the financial statements worked out by applying the different accounting standards to the same enterprise's same fiscal year. This empirical research conducted regression analysis of the sampled 50 enterprises which meet definite standards among 61 enterprises who early adopted IFRS in 2009 and 2010 before the year 2011 when IFRS are obligatorily applied to all listed companies, and as a result of analysis, this paper drew the major conclusions as follows：First, net book value and net profit per se provided additional explanatory power to enterprise value, but net operating assets failed to provide additional explanatory power to enterprise value. Second, the financial information(net book value,net profit, net operating assets), to which IFRS were applied, failed to provide additional explanatory power to enterprise value in comparison with the financial information to which KGAAP were applied. Such a result was found to be the same whether the financial information was analyzed by Ohlson(1995) Model or Feltham and Ohlson(1995) Model. Such a result may make it possible to judge that adoption of IFRS in Korea didn't improve explanatory power to enterprise value, because Korea had already adopted the contents of IFRS in a considerable measure even before it completely adopted IFRS. In other words, it may be said that such a result means that IFRS don't lack the explanatory power to enterprise value, but their introduction effect is relatively insignificant because Korea has already introduced the contents of IFRS in a considerable measure even before their full adoption. In addition, there might exist a sample bias in this study due to self－selection bias because this research was done targeting the 50 enterprises which early adopted IFRS. Therefore, we estimate that it might be possible to more accurately grasp IFRS's explanatory power to enterprise value only after the more in－depth analysis of the financial statements since 2011 when IFRS are obligatorily introduced.

Keywords

  • IFRS
  • Firm Value
  • Early Adopters
  • Ohlson Model
  • Feltham and Ohlson Model

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