Professional Documents
Culture Documents
1 PB
1 PB
4; 2018
ISSN 1833-3850 E-ISSN 1833-8119
Published by Canadian Center of Science and Education
The Impact of IFRS Adoption on Keywords:book value, earnings, firm size, IFRSs,
the Value Relevance of insurance firms, profitability, value relevance
Accounting 1. Introduction
Information: Evidence Questions regarding the relevancy and reliability of
accounting information continue to persist. Accounting
from the Insurance information is considered to be more relevant when it
Sector creates a difference in the decisions made by users and to
be more reliable when it is materially accurate and
Ali A. faithfully represents the phenomena that it claims to
represent.
Alnodel1 The relevancy of accounting information has been
1
Accounting Department, Qassim University, Al-Mulida, recently boosted by the widespread adoption of
International
Kingdom of Saudi Arabia Financial Reporting Standards (IFRS). One of the most
Correspondence: Ali A. Alnodel, P.O. Box 4667, common assertions regarding IFRS is that this set of
Buraidah 51412 Qassim, Kingdom of Saudi Arabia. E- accounting standards is market oriented (Tarca, 2012) and
fosters fair value principles. Therefore, the adoption of
mail: IFRS can cause a significant impact on the value relevance
nodl@qu.edu.sa of accounting information (Bartov, Goldberg, & Kim,
2005). This is especially important for insurance
Received: January 29, 2018 Accepted: companies in which most of their assets and liabilities are
close
to their fair value (Nissim, 2010). Previous studies have
February 20, 2018 Online Published: March 18, produced mixed results with respect to the impact of the
adoption of IFRS. This may be due to the environment and
2018 structure of the industry, market, and economy, which
includes the type of the industry, legal environment,
doi:10.5539/ijbm.v13n4p138 URL: advancement of the business, education, or the
https://doi.org/10.5539/ijbm.v13n4p138 development
of the economy. This study extends these efforts through
an examination of the value relevance of accounting
Abstract information before and after the mandatory adoption of
This paper aims to investigate whether the adoption IFRS by Saudi insurance companies.
of International Financial Reporting Standards (IFRS) The study employs the return and price models to
increases the value relevance of accounting information estimate the value relevance of earnings and equity
for insurance firms listed in the Saudi stock market. The information with their relationship to share prices. The
study employs the Ohlson model (1995) and the Easton– Ohlson model (1995) and the Easton–Harris valuation
Harris valuation model (1991) in order to examine the model (1991) have been utilized to examine the
association among stock market value and book value association among stock market values, book value,
and earnings per share. The data was collected for 21 and
insurance companies listed in the Saudi stock market earnings per share. The data covers pre-IFRS and post-
during the period 2007–2014, which covered pre- / IFRS periods during 2007–2014. The study sample
post-IFRS periods. The results reveal that the book value consists of 21 insurance companies listed in Saudi
of equity becomes less value relevant whereas earnings Arabia’s stock market.
are more value relevant. Further analysis suggests This study contributes to the literature in the following
that the increase in the value relevance of accounting
ways. First, it expands the previous research by focusing
information is positively influenced by companies’
attributes, especially profitability and size rather than on the insurance industry, which is more vulnerable
IFRS to the accounting evaluation model. The study also
adoption. These results highlight the importance of highlights the manner in which investment decisions are
institutional factors in the determination of the value made in one of the emerging economies that has not
relevance of accounting information in emerging received sufficient research efforts. The results of this
stock markets. These results also expand IFRS study can also help in the evaluation of the consequences
research of the adoption of IFRS in the Saudi stock market, as the
through a consideration of the insurance industry, which country has recently adopted a plan to necessitate the
is more vulnerable to the accounting evaluation model. adoption of IFRS by all other industries.
138
139
140
141
period. and s has regardles informati y in s of the Arabia. Auth In Saudi (pre- the EPS/Pjt-1
negative been s of the on. In the adoption A ority compare Arabia, IFR descripti (Entire
Hayn earnings form adoption this follo of IFRS. recheck – the insurance S) ve sample):
ulate wing CM with statistics
Mean Minimum 31.5 161.1 577 18 877.5 –59 11 2671.6 298 970.6 100 551.3 0.0 785 –5.9 410 186.754 – 1 2. 2
Median 499 2 360.50 200 000.0 0.1 100 71.285 7
Std. Dev. 8.7 358 0935. 000.0 100 4 3– 0 0
25.5 .
Maximum 560 116.0 1 000 000.0 7.5 300 18 297.710
20.0 570 0 251 1.7 21 0 –
614
Pre-IFRS
(2008)
17.4 349 13 221 764.7 –0.8 512 –1 –35 –0.0483
Mean 129.4 200 000.0
12.6 828 –0.9 000 952.4 417.47 –0.0495
Median 7 89 –10
50.5 379 800 000.0 0.6 700 0.0382
–14 –
Maximum 098.00
9.0 366 100 000.0 –2.5 100 –0.1425
787.0 472.2
Minimum 23 721.00
10.2 506 181 115.8 0.8 543 0.0491
0 55
Std. Dev. –457
67 2
Post- 24.1 008 285 500.0 0.4 480 593.00 0.0 185
238.0 000.4
IFRS 109
18.9 718 0 200 000.0 0.4 350 62 0.0 193
(2010) 665.50
52.4 500 –59 1 000 4.8 500 –26 0.1 075
Mean 8.7 358 207.0 000.0 –1.1 400 099.9
20 068.40
–0.0 595
Median 12.3 970 100 000.0 1.3 997 1 0.0 471
0
Maximum 8 902.500
26 236 898.3 6
Minimum 18
835.2 280.9
Std. Dev. 8540.00
2 31
–7 013.00
44 328.77
42 689.9
595.6 05
6 378.4
566.5 50
484 3
912.0 980.2
–21 38
043.0 –
117 546.3
866.0 70
1
167.9
98
Notes. consists listed Saudi with 136 ns period variables’ s are follows. the stock firm time t, three a o ae a oR
The of 21 in Stock firm year for 2007–
sample firms the Markets observatiothe 2014. Thedefinition as MV is price of i at measured months a rf m T
o h
142
BV 0.00 000 195 –0.00 266 –0.00 293 EP S – 23. 59** 350.7 3 0
t
Pre-IFRS
Pos t- IFRS (2010) 200 7-2014 (Entire sample)
(2008)
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t-1 re ity of
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136
ta relev
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143
144
145
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Copy r ig hts C
148