IFRS Adoption and Within-Jurisdiction Comparability : Evidence from Chinese Dual-Class Firms

We analyze a unique set of Chinese firms to isolate the effect of accounting standards on within-jurisdiction comparability. A sample of Chinese firms simultaneously maintain two sets of financial statements over the period of 2001-2006 because of their dual-class share structure: statements for A-shares follow Chinese GAAP and those for B-shares follow IFRS. We find a disparity in within-jurisdiction accounting comparability between these two sets of accounting standards: IFRS produces less comparable information within jurisdiction than does Chinese GAAP. We also find that the disparity in comparability is related to fair value accounting, especially when corporate governance is weak. Further, we find that comparability disparity incurs capital market consequence. Disparity in comparability is associated with the differences in stock price and liquidity between A- and B-shares. Our study has implications for the effects of IFRS adoption on overall comparability in general and within-jurisdiction comparability in particular. Our study suggests that a country has to trade off the loss from impaired within-jurisdiction comparability against the benefit from enhanced cross-jurisdiction comparability when considering IFRS adoption