Abstract

This paper examines the effect of mandatory K－IFRS(Korean adopted International Financial Reporting Standards, hereafter K－IFRS) adoption on value relevance in three types of financial statements. Specifically, we test differences of value relevance with consolidated, separate, and individual financial statements and compare change in value relevance of these financial statements in pre and post of K－IFRS period. To do this, we adopt Ohlson(1995)’s model and use observations from KOSPI and KOSDAQ, separately. Analyses are based on the period both the pre K－IFRS (2008～2010) and post K－IFRS(2011～2013) for comparison. Findings of this paper are following. First, we find that under the post K－IFRS period, the value relevance of EPS in consolidated financial statements is relatively lower than that in separate financial statements. Second, when it comes to comparison of value relevance in the pre and post K－IFRS in terms of types of financial statements, we find that value relevance of EPS in consolidated financial statements in post K－IFRS period is not greater than that in consolidated financial statements in pre K－IFRS period. However, value relevance of EPS in separate financial statements in the post K－IFRS period decreases. Third, the value relevance of EPS in individual financial statements in the post K－IFRS period is relatively improved compared to value relevance of EPS in the pre K－IFRS period. Fourth, we find that relative value relevance of EPS in the pre K－IFRS period is significant in the order of separate, consolidated, and individual financial statements while the relative value relevance of EPS in separate financial statements is significantly greater than that in consolidated financial statements in the post K－IFRS. This finding comes from the results that value relevance of EPS in individual financial statements improve regardless of the adoption of K－IFRS while value relevance of EPS in consolidated and individual financial statement decrease in the post K－IFRS. These results imply that the only firms without subsidiary companies experience the positive effect of K－IFRS adoption and others such as the firms with consolidated and separate financial statements are not. Finally, when we divide sample into the type of markets, the finding that value relevance of EPS in individual financial statements increases in the post K－IFRS is mainly driven from the KOSDAQ firms rather than the KOSPI firms. In other words, the value relevance of EPS in the KOSDAQ significantly increases in the post K－IFRS while the evidence from the KOSPI are not. In sum, the results of this paper are inconsistent to the general expectations that the consolidate financial statements as a main financial statements in the K－IFRS adoption could provide useful information about firms with subsidiary companies compared to the separate financial statements. This paper provides the evidence that the only individual financial statements for firms without subsidiary companies show increases in the value relevance of EPS in the post K－IFRS. This imply that the effect of K－IFRS adoption in terms of value relevance of EPS varies depending on type of financial statements and type of markets as well. It also suggests that change in main financial statements from individual to consolidated due to K－IFRS adoption makes investors confused in interpretating accounting information and need more time to digest information in consolidated financial statements. This paper contributes to the related prior studies that have investigated the effect of K－IFRS adoption by providing interesting and meaningful evidences. The findings also provide significant implications to academics and pratitioners who are interested in the effect of K－IFRS adoption. And the evidence that the effect of K－IFRS adoption varies depending on type of markets is meaningful and suggests insight to related accounting institutions and regulators in accounting field.

Keywords

• K－IFRS
• Consolidated financial statements
• Separate financial statements
• Individual financial statements
• Relative value relevance
• Market type

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