The Development of Capital Markets of New EU Countries in the IFRS Era

AbstractFrom 2005, the EU listed companies are obliged to prepare their consolidated financial statements in conformity with IFRS, which are viewed as high-quality financial standards (Leuz, 2003). To comply with the increased disclosure requirements, companies have to incur significant costs. However, the benefits from harmonised financial reporting are available only to those entities, which have serious incentives to report transparently (Daske et al., 2013). The benefits and costs following the changeover to IFRS are therefore neither unfolded equally across companies, nor countries. Empirical research (e.g. Lee et al., 2008; Christensen et al., 2013) reveals that the shortcomings in institutional setting may close off all potential benefits from harmonised accounting, which is pertinent mainly for the transition countries. The aim of this paper is to identify absolute and relative winners and losers among the new EU member states in terms of the progression of their capital market. The particular focus is put on the capital market size measured by a simple criterion “number of listed companies” and its changes in transitional and post-adoption period. The splitting of time-series into two subsets enables to eliminate the influence of different reporting incentives from the effects of change in reporting regime. As an unintended result, the paper's empirical findings raise some doubts about the appropriateness of certain research designs for assessing the economic consequences of mandatory IFRS adoption