Seminar paper from the year 2019 in the subject Business economics -
Investment and Finance, grade: 1,0, Otto Beisheim School of Management
Vallendar, language: English, abstract: Starting in 2005, the portion of
foreign shareholders in the Dax has risen from 45% to 58% in the last
decade. In the same year, the regulation of the European Union from 2002
came into effect which required all listed firms in the European Union
to report their consolidated accounts in accordance with the
International Financial Reporting Standard (IFRS) from 2005 on instead
of each countries' generally accepted accounting standards (GAAP). This
is just one example where the volume of investments increased
concurrently with the adoption of IFRS. Therefore, the question arises
if the mandatory adoption of IFRS in the EU in 2005 or in other cases
significantly affected and continues to affect investment decisions
among adopters or third parties. In order to better account for
differences between different types of investors and investees, we
differentiate between retail investors, institutional investors and
corporate finance activities. Moreover, we focus on the consequence of
IFRS adoption on equity investment decisions as most research appears to
focus on the equity instead of the credit market. Additionally, Lourenco
& Branco point out that most research which finds no significant effects
of IFRS adoption on investment decisions appears to focus on voluntary
adoption before 2005. Thus, this paper mainly focuses on mandatory IFRS
adoption. In this context, research suggests that mandatory IFRS
adopters experience significant capital markets benefits as well as
enhanced foreign institutional ownership and enhanced M&A activity.
Ultimately, we observe four overarching drivers behind the
aforementioned observations that impact investment decisions across
different types of investors and investees.
