Which Analysts Benefited Most from Mandatory IFRS Adoption in Europe?

This study examines whether financial analysts' research structure and portfolio selection choices helped in improving relative earnings forecast accuracy around mandatory IFRS adoption in Europe. Using a sample of 68,665 one-year ahead forecasts for 1,980 publicly listed firms, we find that market-wide mandatory IFRS adoption in the European Union resulted in a significant improvement in the relative forecast accuracy of sector specialists compared to generalists, while country specialists retained a relative accuracy advantage independent of the period of study. Moreover, sector specialists outperformed generalists especially for firms with large local GAAP to IFRS income reconciliations in the first-time IFRS adoption year and when analysts' research portfolios prior to IFRS adoption exhibited high variability in local GAAP reporting practices. Additional analysis indicates that IFRS enabled analysts to initiate coverage of more firms, especially smaller ones, in their sector of specialization. Overall, our results are consistent with the notion that mandatory IFRS adoption in Europe reduced information processing costs and enlarged the within-industry valuation scope