Abstract:

The purposes of this study are to examine the impact of the mandatory International Financial Reporting Standards (IFRS) adoption in 2005 by European firms on the levels of accounting conservatism and value relevance, a feature of earnings quality, and the way large audit firms (Big 4) moderate these effects. The objective is to examine the relationship between conditional conservatism and value relevance of earnings in the post-IFRS time period.  In particular, we investigate whether the relation differs in context of different accounting standards.We study the effect of mandatory IFRS adoption on accounting conservatism defined using Basu’s (1997) asymmetric timeliness measure and with a modified version of the Khan and Watts (2009) measure (C_Score). According to Francis and Schipper (1999), value relevance is defined as the statistical association between prices or returns and financial information presented by book value of equity per share and earnings per share. Using the Ohlson model (1995), stock prices is related to book value of equity per share and earnings per share.The samples obtain from listed firms from 10 European countries, eight code-law European countries and two common-law European countries, that mandatorily adopted IFRS over the period 1995-2014.