Impact of IFRS Mandate on Foreign Mutual Fund Ownership: Role of Information Transparency and Industry

Abstract

This study examines foreign mutual fund’s reactions to the convergence and adoption of International Financial Reporting Standards (IFRS) Considering the development of the information disclosure and transparency ranking system (the IDTRS) and high-technology industries in Taiwan we further examine whether firms’ information transparency and technology intensity are important factors in the changes in foreign mutual fund investment under the IFRS mandate Based on comparability benefits we argue that the impact of the IFRS mandate on foreign mutual fund investment is expected to be high when the amounts of net-worth difference between IFRS and local accounting standards are high However we cannot predict the effects of the IDTRS evaluation and technology-based industries classification on the relation between the IFRS mandate and foreign mutual fund investment We empirically examine the association between two measures of foreign mutual fund ownership and the IFRS mandate First we find IFRS adoption can attract more foreign mutual funds to invest in the firms but not in holdings percentage Second we find that the joint effect of the IFRS mandate and the highest and the lowest transparency grades are both negatively associated with foreign mutual fund investment Third we find that both high-tech and traditional firms have less foreign mutual fund investment relative to firms in other industries under IFRS convergence Overall the IFRS mandate has no consistently positive effects on the level of foreign mutual fund investment and is not related to the amounts of NW difference However corporate transparency and technology intensity have significantly influence on foreign mutual fund investment which suggests that these two factors have effects of information and institutional environment under the IFRS mandate

Date of Award	2015 Aug 27
Original language	English
Supervisor	Hung-chih Li (Supervisor)