The Value Relevance Effects of IFRS Adoption: The Case of the People’s Republic of China

Abstract

We examine the value relevance of accounting information before and after IFRS adoption in the Chinese accounting standards started at 2006 for China capital market, and investigate whether the IFRS adoption affects the financial statements and their value relevance for 3,910 firm‐years of listed firms on SHSE during the period of 2002‐2008. The results are summarized as follows. First, the explanatory power of Ohlson(1995) model increases continuously from 2002 to 2008, and the coefficient of BVE decreases gradually, but the coefficient of E increases after IFRS adoption. Second, the value relevance of accounting information is significantly different between before and after IFRS adoption. Before IFRS adoption, the explanatory power of Ohlson (1995) model is relatively low (adj. R2= 0.264), but relatively high (adj. R2= 0.476) after IFRS adoption. Also, book value of equity plays an influential role before IFRS adoption, but earning has an important effect on stock price after IFRS adoption. Third, the value relevance of accounting information is different by firm’s tradable ratio position. Book value–price relationship is high if a firm’s tradable ratio is low, and earning‐price association is high if a firm’s tradable ratio is high. Finally, the value relevance of accounting information by firm’s tradable ratio is different before IFRS adoption, but not after IFRS adoption.