The impact of mandatory IFRS reporting on institutional trading costs: Evidence from Australia

Research output: Contribution to journalArticleResearchpeer-review

Abstract

This study examines the impact of mandatory International Financial Reporting Standards (IFRS) on the market quality of the Australian Securities Exchange (ASX) 200 constituent stocks. Using traditional metrics that are consistent with prior literature (i.e., bid-ask spreads), the first stage analysis confirms that stock liquidity has improved. However, when the analysis is extended to consider the trading costs incurred by market participants (i.e., execution shortfall), results suggest liquidity has not changed significantly. The paper utilizes rich unique datasets that contain detailed trade information, and findings are robust after controlling for trade difficulty and market conditions. In the era of High Frequency Trading (HFT) and occurrences of 'fleeting' liquidity, this paper provides some evidence that while IFRS may have enhanced 'visible' bid-ask spreads, tangible liquidity for market participants, particularly global institutional investors, has not improved significantly.

LanguageEnglish
Pages797-817
Number of pages21
JournalJournal of Business Finance & Accounting
Volume45
Issue number7-8
DOIs
Publication statusPublished - 2018

Fingerprint

Institutional trading
Liquidity
Trading costs
International Financial Reporting Standards
Bid/ask spread
Market quality
Market conditions
High-frequency trading
Institutional investors

Keywords

  • Accounting standards
  • Australian Securities Exchange
  • Bid-ask spreads
  • Execution shortfall
  • Fleeting liquidity
  • High frequency trading
  • IFRS
  • Institutional investors
  • Liquidity
  • Market quality

Cite this

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abstract = "This study examines the impact of mandatory International Financial Reporting Standards (IFRS) on the market quality of the Australian Securities Exchange (ASX) 200 constituent stocks. Using traditional metrics that are consistent with prior literature (i.e., bid-ask spreads), the first stage analysis confirms that stock liquidity has improved. However, when the analysis is extended to consider the trading costs incurred by market participants (i.e., execution shortfall), results suggest liquidity has not changed significantly. The paper utilizes rich unique datasets that contain detailed trade information, and findings are robust after controlling for trade difficulty and market conditions. In the era of High Frequency Trading (HFT) and occurrences of 'fleeting' liquidity, this paper provides some evidence that while IFRS may have enhanced 'visible' bid-ask spreads, tangible liquidity for market participants, particularly global institutional investors, has not improved significantly.",
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The impact of mandatory IFRS reporting on institutional trading costs : Evidence from Australia. / Lepone, Andrew; Wong, Jin Boon.

In: Journal of Business Finance & Accounting, Vol. 45, No. 7-8, 2018, p. 797-817.

Research output: Contribution to journalArticleResearchpeer-review

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