The Value Relevance of IFRS Adoption: Cross-Country
Comparisons Based on Harmonisation Histories,
Intellectual Capital Disclosures and The Global
Financial Crisis
A thesis submitted
in fulfilment of the requirement of the
Degree of Doctor of Philosophy
Alireza Vafaei
BCom(Hons) (Deakin)
MCom (Deakin)
School of Accounting
College of Business
RMIT University
September 2010
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ACKNOWLEDGEMENTS
Submission of this thesis would not be appropriate without acknowledging the following people
and organizations that have in someway helped towards its completion.
First and foremost, I would like to thank Almighty God for giving me the physical and mental
strength and guidance during this challenging period to enable me to complete this thesis.
I am extremely grateful to my principal supervisor, Professor Dennis W. Taylor, who has
throughout my candidature provided me with invaluable guidance and assistance. He has been a
very responsible and dedicated supervisor. Without his supervision it would have been impossible
for me to complete this thesis within the time allocated. He was always readily available to answer
any of my queries, and has provided me with clear and effective guidance throughout my
candidature. His deep understanding and broad knowledge in research especially in the area of
international accounting harmonization, and his critical and thoughtful insight, makes him an
outstanding supervisor.
I wish to extend my special gratitude to the staff at the School of Accounting, RMIT University
who provided me with helpful administrative support and facilities.
I would also like to take this opportunity and express my gratitude to my colleagues and senior staff
members at School of Accounting, La Trobe University, especially Head of School, Professor
Kamran Ahmed, for their understanding, support, assistance and facilities provided within the final
stages of my thesis.
The most special of my acknowledgement is for my family. Without their sacrifice, tolerance and
encouragement I would not have been able to undertake this journey. To my brother and sister,
Amir and Haleh, thank you for your love, support, understanding and assistance. To my loving
parents, thank you for your support, understanding and prayers. Without the support of all of you I
would not have been able to complete this thesis. I dedicate this thesis to my loving family.
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TABLE OF CONTENTS
ACKNOWLEDGEMENTS .............................................................................................................. ii
TABLE OF CONTENTS ................................................................................................................. iii
LIST OF TABLES ............................................................................................................................ ix
LIST OF FIGURES ........................................................................................................................ xiv
LIST OF ACRONYMS ................................................................................................................... xv
ABSTRACT .................................................................................................................................. xviii
DECLARATION ........................................................................................................................... xxii
CHAPTER 1: INTRODUCTION .................................................................................................... 1
1.1 Preamble .................................................................................................................................... 1
1.2 Objectives of the study and their significance ........................................................................... 3
1.3 Motivations for the study ........................................................................................................... 5
1.4 Scope of the research ................................................................................................................. 7
1.5 Thesis organisation .................................................................................................................... 8
CHAPTER 2: BACKGROUND TO RESEARCH ......................................................................... 9
2.1 Introduction ................................................................................................................................ 9
2.2 Concept and history of harmonization ....................................................................................... 9
2.2.1 International Accounting Standard Committee (IASC) .................................................... 12
2.2.2 International Accounting Standard Board (IASB) ............................................................ 14
2.3 History of accounting practices within the sampled countries ................................................ 16
2.3.1 Hong Kong ........................................................................................................................ 16
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2.3.1.1 Regulatory framework in Hong Kong ........................................................................ 16
2.3.1.2 Accounting standard setting in Hong Kong ............................................................... 17
2.3.1.3 Harmonisation of accounting standards in Hong Kong .............................................. 18
2.3.2 Singapore ........................................................................................................................... 20
2.3.2.1 Regulatory framework in Singapore ........................................................................... 20
2.3.2.2 Accounting standard setting and harmonisation in Singapore ................................... 22
2.3.3 Malaysia ............................................................................................................................ 24
2.3.3.1 Regulatory framework in Malaysia ............................................................................ 25
2.3.3.2 Accounting standard setting and harmonisation in Malaysia ..................................... 26
2.3.4 South Africa ...................................................................................................................... 27
2.3.4.1 Regulatory framework in South Africa ...................................................................... 27
2.3.4.2 Accounting standard setting and harmonisation in South Africa ............................... 28
2.3.5 Australia ............................................................................................................................ 30
2.3.5.1 Regulatory framework and accounting standard setting in Australia ......................... 30
2.3.5.2 Harmonisation of accounting standards in Australia .................................................. 33
2.3.6 United Kingdom ................................................................................................................ 34
2.3.6.1 Regulatory framework in United Kingdom ................................................................ 35
2.3.6.2 Accounting standard setting and harmonization in UK .............................................. 37
2.4 Chapter Summary .................................................................................................................... 41
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CHAPTER 3: LITERATURE REVIEW ...................................................................................... 42
3.1 Introduction .............................................................................................................................. 42
3.2. Origins of the capital market based accounting research (CMBAR) and the value relevance
studies ............................................................................................................................................ 43
3.3 Alternative models of measurement of value relevance of accounting information ............... 45
3.4 Value relevance of earnings and book value and the influencing factors ................................ 47
3.4.1 Negative earnings and the value relevance of earnings and book value ........................... 47
3.4.2 Investment in intangibles and its effect on the value relevance of earnings and book
values .......................................................................................................................................... 51
3.5 Changes in value relevance of accounting information in various countries over time .......... 59
3.5.1 Value relevance studies related to local GAAPs of various countries .............................. 60
3.5.2 Value relevance and harmonization of accounting standards ........................................... 69
3.5.3 Value relevance and mandatory adoption of IFRSs in various countries ......................... 75
3.6 Intellectual capital disclosure and the value relevance of accounting figures ......................... 82
3.6.1 Models used to measure intellectual capital ...................................................................... 86
3.7 Chapter summary ..................................................................................................................... 94
CHAPTER 4: RESEARCH METHODOLOGY AND VARIABLE MEASUREMENT ........ 96
4.1 Introduction .............................................................................................................................. 96
4.2 Quantitative versus qualitative research .................................................................................. 96
4.3 Nature of data used in this study .............................................................................................. 98
4.4 Sample selection ...................................................................................................................... 99
4.5 Incremental value relevance within the year of adoption of IFRSs ....................................... 104
4.6 Value relevance of accounting information within the pre-and post-adoption periods ......... 105
