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Does financial reporting regulation influence the value of cash holdings?

journal contribution
posted on 22.09.2020, 10:18 by Ahmet KarpuzAhmet Karpuz, Kirak Kim, Neslihan Ozkan
We investigate how the value of cash holdings changes following the mandatory adoption of International Financial Reporting Standards (IFRS), which is viewed as an exogenous shock to information asymmetry between firms and outside investors. Using firm-level data from 47 countries, we find that mandatory IFRS adoption has a negative and significant impact on the value of cash holdings. This result suggests that investors reduce their valuation of cash holdings when firms can have access to external financing at a lower cost under IFRS. The negative effect of IFRS is concentrated among financially constrained firms. Furthermore, we show that the effect is more pronounced in countries with strong legal enforcement. Overall, our evidence highlights that financial reporting regulation can have a significant effect on how outside investors value corporate cash holdings across countries.

History

School

  • Business and Economics

Department

  • Business

Published in

Journal of Empirical Finance

Volume

59

Pages

52-67

Publisher

Elsevier

Version

AM (Accepted Manuscript)

Rights holder

© Elsevier

Publisher statement

This paper was accepted for publication in the journal Journal of Empirical Finance and the definitive published version is available at https://doi.org/10.1016/j.jempfin.2020.09.004

Acceptance date

14/09/2020

Publication date

2020-09-17

Copyright date

2020

ISSN

0927-5398

Language

en

Depositor

Dr Ahmet Karpuz Deposit date: 21 September 2020