Trading Volume Reaction to the Earnings Reconciliation from IFRS to U.S. GAAP: Further Evidence

Posted: 24 Apr 2009

Date Written: April 21, 2009

Abstract

The U.S. SEC approved in December 2007 to accept financial statements prepared under IFRS as issued by the IASB without reconciliation to U.S. GAAP for foreign firms. Using a sample of foreign firms that use IFRS and reconcile to U.S. GAAP from 2005 to 2006, we find that earnings reconciliation from IFRS to U.S. GAAP is positively and significantly associated with abnormal trading volume in the U.S. markets around the Form 20-F filing dates. We also document that the trading volume reaction in the U.S. markets is weaker for firms that use IFRS as issued by the IASB than for firms that use other versions of IFRS. Moreover, the trading volume reaction in the U.S. markets exists for firms with low institutional holdings and for first-time IFRS filers but disappears for firms with high institutional holdings and for continuous IFRS filers. Furthermore, we do not find any evidence that earnings reconciliation is significantly associated with abnormal trading volume in the local markets for the full sample and for any partitioned sample. Our evidence is of interest to the SEC when evaluating the effectiveness of its no-reconciliation rule and considering allowing U.S. domestic firms to prepare financial statements under IFRS.

Keywords: earnings reconciliation, IFRS, trading volume reaction

JEL Classification: M41, M44, G15

Suggested Citation

Chen, Lucy Huajing and Sami, Heibatollah, Trading Volume Reaction to the Earnings Reconciliation from IFRS to U.S. GAAP: Further Evidence (April 21, 2009). Available at SSRN: https://ssrn.com/abstract=1392931

Lucy Huajing Chen (Contact Author)

Villanova University ( email )

United States
610-519-6321 (Phone)

Heibatollah Sami

Lehigh University ( email )

Bethlehem, PA 18015
United States
610-758-3407 (Phone)

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