The Effect of IFRS on Competition Among Industry Peers

Abstract

This study examines the relationship between International Financial Reporting Standards (IFRS) and competition among industry peers. Proponents of IFRS contend that uniform accounting standards increase financial statement comparability, and prior research has indicated increased cross-border investments following mandatory adoption in the European Union. The underlying implications of increased financial statement comparability are that firms will be compared to a larger number of firms within their industry and have greater incentive to attract investors due to the higher level of foreign investments. I hypothesize that industry competition increased in the European Union following mandatory IFRS adoption as a result of these effects. I initially find that competition decreased following the implementation of IFRS. However, when the uniformity of accounting standards within industries is considered, I find an increase in industry competition following the implementation of IFRS.