Impact of IFRS adoption and corporate governance principles on transparency and disclosure: the case of Istanbul stock exchange

Abstract

The beneficial consequences of reduction in asymmetric information through disclosure and the performance effects of International Financial Reporting Standards (IFRS) are well-established. However, whether disclosure quality indeed increases due to mandatory and voluntary regulation/best practices , such as the adoption of IFRS and Corporate Governance Principles is still an emprical question that hasn’t been directly tested. This paper tests this in an emerging market (EM where the infrastructure, dominant family ownership, and lax rules and implementation make it less likely for the disclosure quality effects to be observed. We show that Transparency & Disclosure (T&D) scores have improved during 2003-2005 in a sample of Istanbul Stock Exchange Index firmsand those who voluntarily adopted IFRS generally have significantly higher scores. However, the 2005 T&D scores for mandatory and voluntary adopters are not significantly different. Multivariate analysis shows that voluntary IFRS adoption, Corporate Governance (CG) principles, and mandatory IFRS adoption all increase financial disclosure and overall T&D scores. These findings should be of interest to researchers, policy makers, and regulators, especially in EMs that have recently started to adopt these best practices