۱- Introduction

۲- Related literature and hypotheses development

۳- Sample selection and research design

۴- Results

۵- Conclusion

References

Abstract

Prior literature finds that International Financial Reporting Standards (IFRS) adopters enjoy lower financing costs subsequent to IFRS adoption. We predict and find that mandatory IFRS adopters exploit lower financing costs to increase market share vis-à-vis non-adopters. This effect is robust across several different model specifications in a sample capturing the universe of public and private firms in the EU, in a matched sample of public and private firms, and in a public firm sample comparing mandatory and voluntary IFRS adopters. We further find that IFRS is associated with an increase (decrease) in industry sales concentration (competition), consistent with large public firms increasing market share. In supplemental analyses, we find that mandatory adopters issue more equity and debt after IFRS adoption and that larger market share gains accrue to those mandatory IFRS adopters that issue more equity and debt after IFRS adoption. Overall, we provide evidence of unintended product market consequences of IFRS adoption.

Introduction

The purpose of this paper is to examine the association between a change in financial reporting and public firms’ market share. We exploit the mandatory adoption of International Financial Reporting Standards (IFRS) and concurrent enforcement changes in the European Union (EU) as an exogenous change in financial reporting for public firms and find that this change is associated with an increase in IFRS firms’ market share vis-à-vis non-adopters. Based on evidence that information quality improves access to financing and that firm liquidity affects the product market, we predict and find that public firms’ market share increases after IFRS adoption. Our investigation responds to a call by Leuz and Wysocki (2016, p. 108) to provide “more evidence on the real and indirect effects of disclosure and reporting regulation, for example, with respect to corporate behavior, competition, and innovation.” This study also adds to a growing literature on the real effects of financial reporting improvements, which include multinational corporation investment decisions (Shroff et al., 2014), managers’ investment efficiency (Loureiro and Taboada, 2015) and investor allocation decisions (DeFond et al., 2012; Lawrence, 2013). Most relevant to our setting is recent evidence highlighting fewer financing frictions for adopting firms following IFRS and concurrent regulatory events (e.g., (Florou and Kosi, 2015; Naranjo et al., 2018).