The effects of industry characteristics on stock price synchronicity around IFRS adoption

Abstract

The purpose of this paper is to investigate whether a change in stock price synchronicity after IFRS adoption differs by industry characteristics. IFRS adoption was expected to improve earnings quality and comparability. Industry concentration and homogeneity are utilized as industry characteristics, which are known as determinants to earnings quality and comparability to examine IFRS adoption effect on the synchronicity. Using Korean firms listed from 2006 to 2015, the author found that stock price synchronicity decreases after IFRS adoption. The reduction in synchronicity is larger for firms in a concentrated industry. However, the researcher didn’t find that incremental effect of homogeneity on synchronicity changes around IFRS adoption. These results remain unchanged after several robustness tests. The results imply that earnings quality after IFRS adoption improves, while comparability effect is not evident in the Korean market. The paper has implications that co-movement of stock price decreases after IFRS adoption in that delivering firm-specific information to investors; in addition, the magnitude of impacts of IFRS adoption differs by the industry characteristics. The author extends prior studies about IFRS adoption effect on the capital market by providing that the effects need to be examined after considering the industry characteristics.

Keywords

• concentration
• homogeneity
• IFRS
• synchronicity