IFRS Adoption and Liquidity : A Comparative Analysis of Canada with Australia and the United Kingdom

In this study, we investigate the impact of countrywide adoption of IFRS on the liquidity of domestic versus international firms listed in a stock market. We consider two competing forces affecting liquidity from IFRS adoption: enhanced comparability of firms within industries that span international boundaries and less tailoring of financial reporting to meet local investor needs. We compare liquidity - bid-ask, zero returns and trading volume - before and after IFRS adoption for domestic and international firms listed on the Canadian exchanges with liquidity before and after IFRS adoption for firms listed on the Australian and U.K. exchanges. These three countries share the British influence on financial reporting historically and have similar legal and institutional settings. We expect that the benefits of global comparability would be relatively greater for firms listed on the U.K. exchanges relative to firms listed on the Canadian and Australian exchanges given the U.K.'s proximity and commerce with other European countries. For Canadian listings, we find that liquidity (bid-ask spreads and zero returns) increased for non-US international firms but decreased (all three variables) for Canadian domestic firms, consistent with trade-offs between international comparability and localization. We find that liquidity increased for both U.K. domestic and international firms listed on the U.K. exchanges but decreased for both types of firms listed on the Australian exchange. For Canadian firms, our exchange level tests indicate that TSX Venture exchange firms lost more liquidity than TSX exchange firms