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This thesis examines whether IFRS adoption improves the usefulness of accounting information in African capital markets. Consistent with the IASB (2010) conceptual framework which focuses on shareholders, I define usefulness as the increase in value relevance of earnings and book value of equity, asymmetric earnings timeliness and conditional conservatism and the predictive ability of earnings and cash flow. I use a relatively large sample of 347 firms listed in five African capital markets namely; Johannesburg, Nairobi, Cairo and Alexandria, Botswana and Casablanca Stock Exchanges. The thesis derives its motivation from the contemporary debate on fair value versus historical cost accounting, illiquidity of African markets and the adoption of IFRS in Africa. Although IFRS is widely adopted in Africa there are relatively few studies examining its usefulness. In Africa, capital markets are relatively small and illiquid (Smith et al., 2002 and Kenny and Moss, 1998), there are no sound IFRS enforcement mechanisms (Daske et al., 2011, Anandarajan and Hasan, 2010, World Bank, 2010a, and Prather-Kinsey, 2006), culture is secretive and conservative (Dahawy et al., 2002 and Gray, 1988) and many accounting systems are based on government or bank capital models of corporate governance (Chamisa, 2000). Since, IFRS characterized by fair value accounting principles requires liquid and active markets for its appropriate use (Ball, 2008) and focuses on market led principles of measurement and disclosures (Walker, 2010) it is unclear how useful it is to market participants in illiquid markets particularly African capital markets. The research objectives are fourfold; to examine whether IFRS increases (i) the information content of earnings and book value of equity as measured through the earnings response coefficient (ERC), the book value response coefficient (BRC) and adjusted R2 (ii) the asymmetric earnings timeliness and conditional conservatism as a measure of stewardship role of management to capital providers, (iii) the predictive ability of earnings and cash flow and (iv) to examine the conditioning roles of culture and legal origin on the above research sub-themes. The results are summarized as follows; (i) IFRS increases the valuation role of book value of equity and overall value relevance but not earnings. These findings are consistent with the IASB (2010) conceptual framework' focus on the statement of financial position rather than the statement of financial performance in financial reporting. The results are also consistent with prior studies such as Hung and Subramanyam (2007) and Francis and Schipper (1999) which document the declining (increasing) value relevance of earnings (book value of equity), (ii) IFRS is incrementally more value relevant in code law than common law countries and (iii) the secretive culture prevalent in African countries is associated with greater BRC (lower ERC) after IFRS Moreover, consistent with prediction, the results indicate that IFRS leads to reduced gains, loss, incremental loss and overall earnings timeliness. Also, common law earnings are timelier (untimely) in recognizing bad news (good news) than code law earnings. However, this symmetric earnings timeliness decreases after IFRS adoption. Furthermore, the results indicate that a conservative culture is associated with greater (lower) gains (loss and incremental loss) recognition timeliness. In terms of earnings and cash flow predictability, IFRS results in reduced predictive ability of cash flow and earnings. Also, cash flow dominates earnings in predicting future cash flow. Conservative culture is associated with lower (greater) predictive ability of cash flow (earnings). Moreover, results do not support the contention that IFRS increases the predictive ability of earnings and cash flow more in common than code law countries. This is the first comprehensive study examining the decision usefulness (as defined by the IASB conceptual framework, 2010) of IFRS in Africa. The conclusion is that IFRS has not improved financial reporting in Africa. |
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