Market Liquidity Effects Of The IFRS Introduction In Europe

This paper provides cross-country evidence of the IFRS impact on market liquidity costs on French, German, Swedish and U.K. stock exchanges. Using several proxies for information asymmetry, such as bid-ask spread and its adverse selection component, the authors examine how market expectations about adverse information affect liquidity costs before and after IFRS. Their findings confirm that after 2005 trading costs are higher for U.K. and Swedish firms. This change, however, reduces cross-country differences in adverse selection costs. Adverse information costs explain significantly variance in bid-ask spread. With IFRS introduction, spreads become more sensitive to changes in its information component.