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Journal of Undergraduate Research

Keywords

stock price reactions, GAAP, IFRS, investors' perceptions

College

Marriott School of Management

Department

Accountancy

Abstract

This research investigates investors’ perceptions of the expected impact of adopting international accounting standards on U.S. companies. Since these rules differ from current U.S. standards, some speculate that the costs to convert companies’ reporting systems to conform to international standards will have significantly negative effects on their profitability. My project explores stock price reactions to SEC announcements which indicate an increased or decreased probability that U.S. firms will soon be required to switch to International Financial Reporting Standards (IFRS). I hypothesize that expected conversion costs will be higher for companies that are not already operating in foreign countries because more diverse companies already have expertise with respect to international accounting standards. Therefore, I investigate the effects of firm diversification on how investors perceive the future effects of this likely change in accounting standards. I measure investors’ aggregate beliefs about the expected costs associated with conversion to IFRS by observing changes in stock prices.

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