The Effect of International Financial Reporting Standards Adoption on the Relation Between Earnings Quality and Information Asymmetry in Korea

Abstract

Whereas prior studies provide mixed results on whether the adoption of International Financial Reporting Standards (IFRS) either improves earnings quality or lowers information asymmetry, none examines whether the adoption has indeed altered the assumed negative relation between earnings quality and information asymmetry. Using Korean data with a difference-in-difference design, we address the question by examining whether IFRS adoption has strengthened the assumed negative relation. We fail to document such evidence. This study raises questions regarding the validity of prior studies' findings that IFRS adoption has helped capital market participants in Korea via improved earnings quality or lower information asymmetry.