Do IFRS adoption, financial analysts and earnings quality affect the informativeness of stock price?Evidence from the UK
This thesis consists of two studies. The first study examines whether the mandatory adoption of International Financial Reporting Standards (IFRS) affects stock price informativeness, as measured by the extent to which firm-specific information is capitalised into the stock price. Using a sample of 6,367 firm-year observations from 970 publicly listed UK firms during the period from 1990 to 2013, the results show that the mandatory adoption of IFRS does make the stock price more informative. In particular, the results suggest a significant negative relationship between IFRS adoption and the stock price synchronicity. This indicates that the increased transparency following the mandatory adoption of IFRS facilitates the incorporation of firm-specific information into the stock price, leading to more informative stock prices. In this study, the effect of financial analysts’ activities on the relationship between IFRS adoption and stock price informativeness is also considered. The regressions results show that, within the IFRS adopters, the firms followed by a higher number of financial analysts have a higher stock price synchronicity than those followed by a lower number of financial analysts, suggesting that the IFRS adoption increases financial analysts’ ability to incorporate market-wide and industry-wide information into the stock price. Furthermore, these results indicate that the financial analysts’ activities attenuate the synchronicity-reducing effect of mandatory IFRS adoption. The second study, examines the effect of earnings quality on the informativeness of the stock price, using a sample of 5,214 firm-year observations, collected from 880 UK firms for the period from 1994 to 2013. The findings suggest that higher earnings quality encourages the investors to collect and process more firm-specific information, which in turn facilitates the incorporation of this information into the stock price, leading to less synchronous and more informative stock price. In addition, the effect of mandatory IFRS adoption on the relationship between earnings quality and stock price informativeness is examined. Contrary to expectations, the results suggest that the mandatory adoption of IFRS does not have a significant impact on the relationship between earnings quality and stock price informativeness.
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