Purpose: This paper aims to investigate the impact of International Financial Reporting Standards (IFRS) adoption on financial reporting quality and cost of equity. The paper further investigates whether such association varies at different life cycle stages.
Design/methodology/approach: This paper follows the methodologies of DeAngelo et al. (2006) and Dickinson (2011) to develop proxies for the firms’ stages in the life cycle.
Findings: Using both pre- and post-IFRS adoption period for Australian listed companies, the paper finds that financial reporting quality reduced and cost of equity increased because of the adoption of IFRS. The paper further evidences that financial reporting quality in the post-IFRS period increased cost of equity. Finally, the paper finds that mature firms produce a better quality of earnings, which result in lower cost of capital. The results indicate that a mature firm was benefited because of the adoption of IFRS.
Originality/value: The finding of this research is useful to the regulators and practitioners to understand the widespread benefit of IFRS adoption.
- Cost of equity
- Financial reporting quality
- Firm life cycle