Did mandatory IFRS adoption affect the cost of capital in Latin American countries?

André Aroldo Freitas de Moura*, Aljaohra Altuwaijri, Jairaj Gupta

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

This study investigates whether mandatory adoption of International Financial Reporting Standards (IFRS) has affected the long-term cost of equity and debt in Latin America, where the enforcement of accounting standards and investor protection mechanisms are weak in comparison to developed nations. Analyzing a sample of firms from Argentina, Brazil, Chile, Mexico, and Peru, we show that mandatory IFRS adoption led to reduction in the cost of equity even after controlling for firm-level reporting incentives. Test results also show that the cost of debt was reduced significantly after the IFRS adoption. Our results suggest that enhanced disclosure and comparability stemming from IFRS in comparison to previous domestic accounting standards helped to mitigate the information asymmetry problem, and resulted in positive economic consequences for Latin American firms.

Original languageEnglish
Article number100301
JournalJournal of International Accounting, Auditing and Taxation
Volume38
DOIs
Publication statusPublished - Mar 2020

Bibliographical note

Funding Information:
André Aroldo Freitas de Moura gratefully acknowledges financial support from the National Council for Scientific and Technological Development (CNPq) of the Ministry of Science, Technology and Innovation of Brazil ( 230153/2013-5 ). We are also sincerely grateful to the editor and anonymous referees for their insightful comments and suggestions that improved this paper significantly.

Publisher Copyright:
© 2020 Elsevier Inc.

Keywords

  • Cost of debt
  • Cost of equity
  • Debt holders
  • IFRS
  • Investors
  • Latin America

Cite this