Review of Accounting Studies

, Volume 15, Issue 4, pp 725-751

First online:

Market reaction to and valuation of IFRS reconciliation adjustments: first evidence from the UK

  • Joanne HortonAffiliated withDepartment of Accounting, London School of Economics Email author 
  • , George SerafeimAffiliated withDepartment of Accounting and Management, Harvard Business School

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We investigate the market reaction to, and the value-relevance of, information contained in the mandatory transitional documents required by International Financial Reporting Standards 1 (2005). We find significant negative abnormal returns for firms reporting negative earnings reconciliation. Although the informational content of the positive earnings adjustments is value-relevant before disclosure, for negative earnings adjustments it is value-relevant only after disclosure. This finding is consistent with managers delaying the communication of bad news until IFRS compliance. A finer model shows that adjustments attributed to impairment of goodwill, share-based payments, and deferred taxes are incrementally value-relevant but that only the impairment of goodwill and deferred taxes reveal new information. Our results indicate that mandatory IFRS adoption alters investors’ beliefs about stock prices.


International Financial Reporting Standards Event study Value-relevance Information

JEL Classification

G14 G15 M41