IFRS Adoption and Agency Costs

Abstract

This study examines the effect of IFRS adoption on agency costs between managers and shareholders. In particular, we compare the market value of corporate cash holdings before and after the mandatory adoption of IFRS in Korea. The empirical results show that the market value of cash holdings is significantly lower in the post-IFRS period, implying that Korean firms experience more severe agency problems after the adoption of IFRS. Our results are consistent with the argument that accounting quality hinges not only on the quality of accounting standards, but also on the legal and political system and financial reporting incentives.