IFRS Adoption in Korea: The Relation Between Earnings and Stock Prices and Returns

Abstract

This study examines the value relevance of earnings surrounding Korea’s adoption of International Financial Reporting Standards (IFRS), which was mandatory beginning in 2011. The study is motivated by mixed results in prior research of other countries’ IFRS adoption and by limited research on Korea’s adoption. We
analyze annual stock prices and stock returns for 487 firms in the 10-year period, 2006 to 2015. Results indicate that the earnings-stock price relation increased in
the IFRS periods compared to earlier periods, consistent with increased value relevance. The relation between earnings and stock returns decreases in IFRS periods.