Mechelli Alessandro, Sforza Vincenzo, Cimini Riccardo / Financial Reporting / 1-2020

The first-time adoption of International Financial Reporting Standards (IFRS) 9 at the beginning of fiscal year 2018 has offered the opportunity to test whether the informationn provided by this new accounting standard on financial instruments is more useful for investors than International Accounting Standard (IAS) 39. This paper assesses and compares the value relevance of book value calculated according to the requirements of the two accounting standards on financial instruments at the beginning of the transition year for a sample of 110 financial entities listed in 20 stock markets that have recorded transition effects between retained earnings. Findings provide evidence that both IAS 39 and IFRS 9 are value relevant and that the second one adds more infromation than that previously supplied by the first one. The paper contributes to the literature by providing the first evidence of the usefulness of the new accounting standard on financial instruments. About its practical implications, the paper provides insights regarding the high quaity of the International Accounting Standards Board (IASB)’s standard setting process.

IFRS 9, IAS 39, value relevance, European Union, financial entities