Review of Accounting Studies

, Volume 15, Issue 4, pp 725–751

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


DOI: 10.1007/s11142-009-9108-5

Cite this article as:
Horton, J. & Serafeim, G. Rev Account Stud (2010) 15: 725. doi:10.1007/s11142-009-9108-5


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 StandardsEvent studyValue-relevanceInformation

JEL Classification


Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  1. 1.Department of AccountingLondon School of EconomicsLondonUK
  2. 2.Department of Accounting and ManagementHarvard Business SchoolBostonUSA