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A Behavioural Appraisal of Regulatory Financial Reforms and Implications for Corporate Management

Lookup NU author(s): Professor Bartosz GebkaORCiD, Professor Darren DuxburyORCiD, Dr Chen SuORCiD



This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY-NC-ND).


We examine the capital market consequences of the mandatory adoption of International Financial Reporting Standards (IFRS) in Europe through the behavioral lens of investor sentiment, investigating changes in the irrational sentiment-return relationship pre/post-reform. Preliminary country-level analyses reveal that the majority of countries exhibit a weakened sentiment-return relationship post-IFRS, indicating an improvement in capital market efficiency. In our main analyses, accounting for the influence of global stock market trends, we undertake a global pooled difference-in-difference investigation to compare the change in the sentiment-return relationship in countries adopting IFRS to a set of non-adopting countries. A significant weakening of the sentiment-return relationship is observed in IFRS countries but is absent in non-IFRS countries. Robustness tests show that the IFRS effect is not driven by concurrent improvements in enforcement, is observed irrespective of voluntary early adoptions or sluggish rollouts of compulsory adoptions, and prevails regardless of countries’ institutional quality, capital market development level, and information availability, albeit to various degrees. We provide strong support for the success of IFRS in its aim of improving market efficiency. Financial markets play a vital role in corporate decision-making, hence our findings have important implications for corporations and their managers.

Publication metadata

Author(s): El Hajjar S, Gebka B, Duxbury D, Su C

Publication type: Article

Publication status: Published

Journal: British Journal of Management

Year: 2024

Volume: 35

Issue: 1

Pages: 415-433

Print publication date: 01/01/2024

Online publication date: 22/03/2023

Acceptance date: 13/02/2023

Date deposited: 22/03/2023

ISSN (print): 1045-3172

ISSN (electronic): 1467-8551

Publisher: Wiley-Blackwell Publishing Ltd


DOI: 10.1111/1467-8551.12720


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