The Impact of IAS No. 27 on the Market's Ability to Anticipate Future Earnings

• 成果类型: Article
• 署名作者: Hsu, Audrey Wen-Hsin; Pourjalali, Hamid
• 署名单位: National Taiwan University; University of Hawaii System; University of Hawaii Manoa
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12088
• 发表日期: 2015
• 页码: 789-+
• 关键词: ownership; disclosure

摘要

Our study examines the effect of firms' adoption of International Accounting Standard No. 27 (IAS 27) consolidation rules on the stock market's ability to predict firm earnings as captured by the forward earnings response coefficient (FERC). IAS 27, effective in Taiwan for fiscal years beginning after January 1, 2005, defines consolidation criteria for voting entities based on whether the investing entity has effective control over financial and operating decisions. ARB 51, effective in Taiwan before 2005, uses controlling financial interest as the criterion for consolidating voting entities. We argue that IAS 27 results in stock prices that better anticipate future earnings because IAS 27 requires more investees to be consolidated than ARB 51, which should provide information that better approximates the economic resources controlled by management. Consequently, statements prepared under IAS 27 can better portray the economic performance of the group and provide a clearer signal of future performance. Following the IAS 27 definition can also reduce managers' ability to manage earnings through affiliated transactions. Consistent with the standard's intended objectives, firms experience a significant increase in FERC after adopting IAS 27. These increases are incremental to those found in control firms that were unaffected by the new consolidation rules. Furthermore, the affected firms show fewer affiliated transactions after IAS 27 adoption.