Empirical Analysis Of The Impact Of IFRS Adoption On Profitability

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2.5. IFRS and Financial Performance
One may be forced to ask if the adoption of a uniform global financial reporting framework (IFRS) would enhance financial performance. Theoretically, IFRS can help to promote excellent firm performance. However, there is as yet no robust empirical evidence that this causal relationship is quantitatively significant. Performance simply means any recognized accomplishment or the achievement of set goals. (IRONKWE, Uwaoma) A company that is performing well is one that is successfully achieving its goals and is efficiently executing suitable strategies. (Nsijilem, S.C, 2015)
However, Taiwo and Adejare (2014) “Empirical Analysis of the Effect of International Financial Reporting Standards (IFRS) Adoption on …show more content…

Impact of IFRS Adoption on Profitability
Profitability is one of the key indicators, shows the health of a company; proponents of IFRS claim that adoption of IFRS results in increase in these ratios. Studies by Lantto and Sahlstom examined the impact of IFRS adoption on key financial ratios of Finnish companies. The results showed that, IFRS changes the magnitude of accounting ratios due to the adoption of fair value accounting and stricter requirement on certain accounting issues. The results indicated increase in profitability.
Suh (2012) “Effects of IFRS on Korean Banks and Future Prospect”, examined the impact of IFRS adoption on the performance of banks. The results of his study showed that IFRS Adoption favorably affected the profitability.
George Iatridis(2010), “IFRS Adoption and Financial Statement Effects: The UK Case” This study investigates the impact of the implementation of the International Financial Reporting Standards (IFRSs) on key financial measures of UK firms and the volatility effects of IFRS adoption. The findings show that IFRS implementation has favorably affected the profitability and growth potential of firms. In 2007 Marchal also found out in his research increase in Profitability under …show more content…

Impact of IFRS Adoption on Liquidity
This is also a good indicator of financial health by determining financial strengths, weaknesses and ability to meet their obligation as they fall due.
According to the Yetunde Omowunmi Adeuja, examined the Impact of IFRS on the Performance of Banks in Nigeria. The result of his analysis showed a reduction in liquidity ratio computed under IFRS.
Latto and Sahlstom 2009 examined the impact of IFRS adoption on key financial ratios of Finnish companies. They also found out that liquidity ratio decrease under IFRS compared to local GAAP.
Daske, Hail, Leuz and Verdi (2007) studied 3,100 companies in 26 countries under mandate to adopt IFRS in “Mandatory IFRS Reporting around the World: Early Evidence on the Economic Consequences.” The objective of the study was to examine the economic effects of IFRS adoption for both voluntary and mandated adopters. The results and conclusion were that a company’s adoption of IFRS creates unassailable economic gains in countries with uncompromising regulation over financial reporting. These benefits include an enhancement in the stock’s market value, an increase in market liquidity, and a lower cost of

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