The Evolving Economic Role of Accounting Standards: Evidence from Bilateral Cross-Border M&A Flows

Abstract

Cross-border M&As are important to the participating countries. I posit that mandatory International Financial Reporting Standards (IFRS) adoption lowers the systemic information noise embedded in countries’ accounting standards. This reduces the associated information processing costs and enhances the economic role accounting standards play on cross-border M&A flows. After mandatory IFRS adoption, a 1% increase in accounting standards disparity suppresses bilateral M&A flows by around 2%; a decrease in accounting standards disparity helps promote bilateral M&A flows when paired countries’ governance infrastructure gaps are relatively wider. I do not find that these associations were significant prior to mandatory IFRS adoption. Overall, this paper documents an evolving economic role accounting standards play on bilateral cross-border M&A flows and sheds light on the economic benefits of adopting IFRS for policy makers.

Keywords

IFRS / cross-border mergers and acquisitions / international trade / accounting harmonization

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2014 Higher Education Press and Brill