Abstract

This study examines whether information usefulness increases when predictive value of financial information increases as a result of adoption of K－IFRS. For this, the study examined whether stock price relevance of key financial ratios, used for predictors when preparing pro forma financial statements, has increased upon adoption of K－IFRS by utilizing published financial statements and stock price information from 2006 through 2012 of companies with early adoption of K－IFRS in 2009 or 2010. Result of the study shows that stock price relevance of profit or loss predictors, such as sales per share, net operating profit margin on sales, after－tax borrowing rate, and net financial liabilities per share, needed for preparation of pro forma statement of comprehensive income, has increased upon adoption of K－IFRS. For financial position predictors needed for preparation of pro forma statement of financial position, stock price relevance of sales per share and financial leverage ratio has increased upon adoption of K－IFRS. On the other hand, stock price relevance of reciprocal of operating working capital turnover showed no significant difference. Furthermore, stock price relevance of reciprocal of Long－term net operating assets turnover has even decreased upon adoption of K－IFRS. To summarize, financial ratios related to profit or loss predictors has significantly increased information usefulness upon adoption of K－IFRS due to increased predictive value. On the other hand, information related to financial position predictors of financial statements, such as operating working capital turnover and Long－term net operating assets, showed no significant differences in information usefulness or even decreased information usefulness due to decreased predictive value, although some financial position ratios, such as financial leverage ratio, showed increased information usefulness resulting from increased predictive value. Accordingly, the result of this study suggests that improvements of recognition, measurement, and reporting standards may be needed to increase predictive value of operating working capital and Long－term net operating assets.

Keywords

• K－IFRS
• pro forma financial statements
• value relevance
• financial ratio
• Predictive value

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