Value relevance of compliance with IFRS 7: evidence from Canada

Abstract

Purpose This paper aims to test whether the extent of compliance with International Financial Reporting Standards (IFRS) 7 requirements is value relevant and whether it influences the value relevance of the firm's accounting information (book value of shareholders' equity and net income). Design/methodology/approach The sample for this paper consists of 288 financial institutions listed on the Toronto Stock Exchange (TSX) from 2016 to 2019. Panel regressions have been used in this study. Findings The findings reveal that compliance with IFRS 7 is positively associated with the firm's market value. After making a classification between high-compliance and low-compliance companies, the authors' results indicate that the compliance level is positively associated with the value relevance of net income. Surprisingly, when examining the value relevance of financial instruments disclosures (FID) supplied after the adoption of IFRS 9, the authors find that book values of shareholders' equity and earnings are not more value relevant in the post-IFRS 9 period. Research limitations/implications Given that the authors' analysis has been restricted to the Canadian setting, the regression results might not be generalized for other countries with different capital markets features. Practical implications The authors' findings point out that FID can affect investors' decisions as well as their confidence in the companies in which they invest. Hence, the regulatory bodies should gear more efforts to ensure high-compliance levels. Originality/value To the best of the authors' knowledge, this research is among the first attempts to investigate whether the new FID (after the adoption of IFRS 9) improves the firm disclosure quality and enhances the value relevance of accounting information.