The Impact of IFRS Adoption on the Cost of Equity Capital of Romanian Listed Companies

Author:Professor Ion IONAŞCU, Ph.D., Lecturer Stere MIHAI, Ph.D., Lecturer Mihaela IONAŞCU, Ph.D.

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Keywords:disclosure quality, cost of equity capital, benefits of IFRS adoption in Romania

Abstract:
The purpose of this paper was to identify possible economic benefits of IFRS adoption in Romania. Among the economic benefits of their adoption, the IFRSs are expected to increase transparency, diminish information asymmetry and risk and consequently reduce the cost of capital. In order to determine whether the cost of equity capital decreased as a result of IFRSs adoption in Romania, the authors based their analysis on one of the models advanced by Botosan and Plumlee (2005) and assessed the level of the cost of equity capital both on pre- and post-adoption samples. The results showed that the cost of equity capital did decrease after the IFRSs were adopted in Romania, from 0.8 (computed based on a pre-adoption sample) to 0.07, the IFRSs providing the economic benefit of a reduced cost of capital for Romanian listed companies.\r\n\r\n

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