Does IFRS convergence promote corporate innovation? Preliminary evidence from China

ABSTRACT

Using a sample of Chinese A-share and H-share firms, this study examines the influence of International Financial Reporting Standards (IFRS) convergence on corporate innovation. Empirical results show that compared with H-share firms not affected by IFRS convergence, A-share firms engage more in innovative activities during the post-convergence period. Further analyses show the positive effect of IFRS convergence on corporate innovation only exists in firms with high information asymmetry before IFRS convergence; improving information environment is the mechanism through which IFRS convergence affects corporate innovation. This study contributes to the literature on disclosure regulations in emerging markets and enriches academic understanding of the real effects of IFRS convergence.

KEYWORDS:

• Accounting comparability
• IFRS convergence
• information environment
• corporate innovation

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Actually, the difference between HKFRS and IFRS is minimal. Hong Kong Society of Accounting (HKSA) has officially prompted Hong Kong Statements of Standard Accounting Practice (SSAPs, later replaced by HKFRS) to comply with all material respects with International Accounting Standards (IAS, gradually replaced by IFRS) since 1992 (Price Waterhouse Information Guide [1991] 1995 In 2005, HKFRS eventually achieved fully convergence with IFRS (Ip and Noronha 2007).

2. Exposure draft available from: http://www.fasb.org/project/cf_phase-a.shtml.

3. Due to the lack of full disclosure of analyst following data in the CSMAR database following 2005, the average number of analysts following in 2005 and 2006 were used.

4. We do not report the coefficents on the control variables for Table 7 either.

Additional information

Funding

This work was supported by the the Fundamental Research Funds for the Central Universities, and the Research Funds of Renmin University of China [19XNL007].