IFRS adoption and seasoned equity offering underperformance

This study uses a cross-country sample to examine the impact of adoption of IFRS on seasoned equity offering (SEO) underperformance. The empirical literature on SEOs has established that information uncertainties contribute to SEO underperformance. Given the growing number of countries that have adopted IFRS, it is therefore important to assess whether adoption of IFRS reduces the uncertainties surrounding SEOs and, thus, subsequent underperformance. The study employs a control sample of non-IFRS adoption countries and applies a difference-in-difference design to capture the incremental change between the treatment and control samples. We find that SEO underperformance decreases for IFRS adopters. The decrease in SEO underperformance is influenced by increased disclosure, increased comparability, and number of accounting changes. We find that the impact of adoption of IFRS on SEO underperformance exists only for firms in countries with strong enforcement, and is conditional on the implementation credibility of countries. These findings are statistically robust to the application of different measures of SEO underperformance, but vary in economic terms. Overall, our study provides global evidence on SEOs and potentially encourages firms to increase disclosure of financial information and to consider issuing SEOs in countries that enforce standards and implement the standards credibly.