Is IFRS Related to Lower IPO Valuation Error?

This study compares the accuracies in IPO valuation under International Financial Reporting Standards (IFRS) and under U.S. Generally Accepted Accounting Principle (US GAAP). This study conducts comparable-firms approach with a sample of recent IPOs in the US capital market during 2005-2013. The IPOs are grouped into three sub-samples: (1) IFRS adopters, (1) US GAAP adopters, (2) US GAAP adopters, and (3) Local GAAP adopters. The findings show that IFRS adopters exhibit prediction errors smaller than other adopters in the IPO valuation. In addition, IFRS adopters among the adopters provide financial reporting users with higher predict value than other accounting standards after the IPO. The findings remain robust after additional checks. Overall, the findings are supportive to the viewpoint that IFRS is conducive to the quality of accounting information and financial statement users’ investment decisions. However, several limitations in this study are also mentioned.