We examine the stock market reactions to events leading up to China’s convergence to International Financial Reporting Standards (IFRS) in 2007.1 We have two important motivations for examining the IFRS experience in China. First, from a policy-making perspective, China is the first among the large emerging economies known as BRICs (Brazil, Russia, India, and China) to adopt or converge to IFRS. Second, from an academic perspective, China provides a useful research setting for evaluating the impact of IFRS because of its unique institutional structures. Mounting empirical evidence from cross-country analyses (e.g., Byard, Li, & Yu, 2011; Daske, Hail, Leuz, & Verdi, 2008; Kim & Shi, 2012; Li, 2010) reveals that the benefits of mandatory IFRS adoption (or convergence) are dependent on strong legal enforcement and investor protection.2 Because China has a relatively weaker institutional environment (Allen, Qian, & Qian, 2005; Morck, Yeung, & Yu, 2000) than those of more developed Western economies, it is unclear whether it meets the prerequisites to render IFRS beneficial. Hence, studying the effect of IFRS convergence in China is an interesting and important question. Indeed, existing studies of the ex post impact of IFRS convergence in China have yielded mixed and marginal evidence of benefits (e.g., He, Wong, & Young, 2012; Liu, Yao, Hu, & Liu, 2011). Unlike those studies, we examine the ex ante implications of IFRS convergence in China. We do so by analyzing the stock market reactions to important events leading up to China’s convergence to IFRS. This approach allows us to assess whether investors, as end users of financial statement information, viewed movements toward IFRS convergence favorably. It also facilitates a more objective assessment of the expected economic implications of IFRS convergence, rather than the relatively more subjective assessments (such as earnings management) used in prior research. It is widely accepted that principles-based accounting standards such as IFRS increase the scope of managerial judgment and facilitate communication of economic substance to end users of financial statements vis-a`-vis rules-based standards that focus more on legal form (Nobes, 2005; Schipper, 2003). The Chinese domestic accounting standards prior to IFRS were largely rules-based and highly prescriptive (The Institute of Chartered Accountants of Scotland, 2010). This suggests that investors are likely to react favorably to the convergence to IFRS in anticipation of improved financial reporting quality. However, the increased discretion under IFRS may lead to greater use of opportunism in financial reporting, leading investors to react unfavorably to the convergence. We provide empirical evidence on whether market participants view IFRS convergence favorably or unfavorably.