For Better or for Worse? The Economic Consequences of Frequent Accounting Standard Changes

This paper sheds light on the short-term capital-market effects of all changes or amendments to International Financial Reporting Standards (IFRS) in the period between 2005 and 2014. The dynamic nature of IFRS is an interesting, yet underexplored setting. Since 2005 the International Accounting Standards Board (IASB) has adopted more than 100 changes to its accounting standards, claiming to improve transparency of financial reporting. We ask whether these standard changes are always for the better, or – at least sometimes – for the worse. Based on an international sample of more than 35,000 firm-year observations from 39 countries, we show that the IASB is generally compliant with its mission to increase the usefulness of financial reports for capital market participants. We however also show that positive capital market effects mainly arise when disclosure rules are changed whereas changing definition or measurement sections in accounting standards can also increase short-term opacity. Moreover, changing accounting standards may have adverse effects for firms closer to covenant violations. The paper contributes to the scarce literature on effects of (frequently) changing accounting standards.