IFRS and Market Reactions to Analyst Stock Recommendations: Evidence from Korea

We examine changes in both short-term and long-term market reactions to financial analysts’ stock recom- mendations around the time of IFRS adoption. If the adoption of IFRS improves the corporate-information environ- ment, thereby diminishing the role of the analyst as a generator of information, investors will become less dependent on analyst recommendations; thus, market reactions to analysts’ stock recommendations will decrease. However, if the corporate-information environment deteriorates after the adoption of IFRS, investors will become more de- pendent on information from intermediaries, such as financial analysts; thus, market reactions to analysts’ stock recommendations will increase. Based on observations of South Korean companies, we find that short-term market reactions to analysts’ stock recommendations diminish after the adoption of IFRS but fail to find a decrease in long-term market reactions to analysts’ stock recommendations after the adoption of IFRS. Our results suggest that IFRS enhances the corporate-information environment and, therefore, that investors rely less on financial ana- lysts’ recommendations after the adoption of IFRS.