The Accounting Review· 2026Q1
The Cost of Regulatory Inaction: Evidence from IFRS Nonadoption
- 1citations
- Q1SCImago
- 2026year
Short summary
Firms in countries that did not adopt IFRS experienced a significant decline in liquidity when other firms in their portfolios adopted IFRS, particularly if enforcement was weak.
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Key points
- Non-adopting IFRS firms experienced a liquidity decline when other firms in their investor portfolios adopted IFRS.
- Analysts and institutional investors shifted attention away from non-IFRS firms as their portfolios adopted IFRS.
- The negative impact on liquidity and information production was more severe in non-adopting countries with weak enforcement and greater accounting distance from IFRS.
- Regulatory inaction can lead to a diversion of information resources, harming firms in the old regime.
AI-generated from the title and abstract; the full text is not read.
Abstract
A growing literature has examined the benefits and costs of implementing new disclosure regulations. However, little is known about the consequences when regulators fail to take action. Using IFRS adoption in 2005 as the setting, we examine the costs of regulatory inactions among non-adopting countries. We find that firms located in non-adopting countries with a higher overlap of common investors with firms in IFRS-adopting countries experience a significant decline in liquidity. Employing a within-firm-time design, we further demonstrate that analysts and institutional investors shift their attention from non-IFRS firms when other firms in their portfolios adopt IFRS. Moreover, the decline in liquidity and the associated reduction in information production by analysts and institutional investors are particularly pronounced in non-adopting countries with weak reporting enforcement actions and increasing accounting distance from IFRS standards. Overall, our findings highlight the potential costs of regulatory inaction. Valuable information production resources are diverted to the new regime, resulting in a worsened information environment for companies in the old regime.
The authors' abstract, as published at the source. The Accounting Review, 2026 · DOI ↗
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