This study aims to analyse, within the scope of publicly listed Spanish companies, whether the mandatory implementation of International Financial Reporting Standards (IFRS) has had an effect on financial analysts’ earnings forecasts and investments in non-cross-listed Spanish companies (those only listed on the Spanish capital market). A sample of 369 observations for companies listed on the Spanish securities market for the period 2004–۲۰۰۷, of which 84 are cross-listed, was used to perform the analysis. The results show that the transition from domestic to international accounting standards has had positive effects for non-cross-listed Spanish companies, leading to the improved accuracy of financial analysts’ earnings forecasts and an increase in investments.
The wide range of financial reporting standards used around the world is an important factor that impacts data processing costs for investors who wish to diversify their investment portfolios on an international scale (Khurana & Michas, 2011). The use of domestic accounting standards make it more expensive and difficult to assess investment opportunities due to the complexity of comparing financial reports of companies listed on different international markets. Owing to this complexity, companies seeking to invest in other countries are obliged to reconcile their financial results to the host country’s financial reporting standards to ensure comparability. As of 1 January 2005, Regulation (EC) No. 1606/2002 of the European Parliament and of the Council requires all listed companies to prepare their consolidated financial reports in accordance with International Financial Reporting Standards (IFRS). The aim of simultaneously adopting IFRS in all listed companies in different countries is to achieve the greater uniformity, transparency, reliability, and comparability of financial data on capital markets (Alon & Dwyer, 2014; Barth, Landsman, & Lang, 2008). In the case of listed Spanish companies, the mandatory adoption of IFRS in 2005 has facilitated the comparability of financial data with respect to other listed European companies. The literature on the consequences of IFRS adoption is mixed. However, numerous studies have highlighted the benefits, including White (2007), Armstrong, Barth, Jagolinzer, and Riedl (2010), Daske, Hail, Leuz, and Verdi (2008), Johnson (2009), Zhou, Xiong, and Ganguli (2009), and Barth, Landsman, Lang, and Williams (2012), who report a positive impact of IFRS in terms of greater uniformity, transparency, and comparability of financial data, thus reducing data preparation and processing costs. The availability of more uniform and transparent data also reduces information asymmetries between investors and increases market liquidity (Abad, Cutillas-Gomariz, Sánchez-Ballesta, & Yagüe, 2018). As regards securities trading, Daske et al. (2008), Daske, Hail, Leuz, and Verdi (2013), Li (2010), and Christensen, Hail, and Leuz (2013) observed that IFRS adoption increases market liquidity. This increase is greater in countries with stronger enforcement mechanisms where companies have greater incentives to be more transparent.