The effect of corporate governance and investor protection environments on the value relevance of new accounting standar
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The effect of corporate governance and investor protection environments on the value relevance of new accounting standards: the case of IFRS 9 and IAS 39 Alessandro Mechelli1 · Riccardo Cimini2 Accepted: 11 November 2020 © The Author(s) 2020
Abstract The first-time adoption of IAS/IFRS accompanied by the issuance of new international accounting standards has provided mixed results regarding their ability to improve accounting quality. A possible reason is that not only the quality of the standard-setting process, but also other factors might affect accounting quality and one of its dimensions, namely, value relevance. By analysing data from a sample of 316 financial entities listed in 43 countries from all over the world and adopting IFRS 9 in place of IAS 39 as of 1st January 2018, this paper tests whether the quality of firm-level corporate governance and country-level investor protection environments affects the value relevance of equity values calculated according to the requirements of IFRS 9 and IAS 39. The results suggest that, despite both accounting standards providing investors with value relevant information, in the presence of high-quality corporate governance or a high-quality investor protection environment, IFRS 9 is more value relevant than IAS 39, whereas the opposite is true in the presence of low-quality corporate governance or a low-quality investor protection environment. The research results provide the first empirical evidence of the value relevance of the new accounting standard on financial instruments and contribute to the debate on the existence of other factors that, together with the quality of the IASB standards, affect the quality of financial reporting. Keywords IAS 39 · IFRS 9 · Value relevance · Corporate governance · Investor protection
* Riccardo Cimini [email protected] https://www.scopus.com/authid/detail.uri?origin=AuthorProfile&authorId=56060763900&zone = Extended author information available on the last page of the article
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A. Mechelli, R. Cimini
1 Introduction The objective of this paper is to investigate whether the quality of both corporate governance and the investor protection environment affect the value relevance of international financial reporting standard (IFRS) 9 and international accounting standards (IAS) 39. The first-time adoption (FTA) of the former at the beginning of 2018 in place of the latter provides the opportunity to test the ability of firmlevel and country-level factors to improve value relevance, thanks to the availability of accounting amounts calculated according to the requirements of both accounting standards on financial instruments. The motivations of the paper are the conflicting results achieved by scholars studying the FTA or subsequent revisions of IAS/IFRS and their effects on accounting quality. Despite the fact that they are considered to be a set of highquality accounting principles that improve financial reporting comparability among companies on a worldwide basis (Jacob and Madu 2009), evidence has not
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