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A Comparison of the Value Relevance of IFRS with Taiwanese GAAP Accounting Information
Huoshu Peng∗ Professor
Department of Accountancy, National Taipei University
151, University Rd., San Shia District, New Taipei City, Taiwan, R.O.C.
Tel: 0921159679 E-mail: [email protected]
Mei-Hui Chen
Associate Professor Graduate School of Finance, National Defense
University Tel: 0936482705
E-mail: [email protected]
This version: Feb. 15, 2014
∗ Corresponding author
A Comparison of the Value Relevance of IFRS with Taiwanese GAAP Accounting Information
ABSTRACT: Taiwan adopted IFRS beginning January 1, 2013. According to IFRS 1, its
date of transition to IFRS was January 1, 2012, and the year 2012 was the comparative
period where the listed companies in Taiwan should present their financial reporting both
under Taiwanese GAAP as well as under IFRS. This study uses Taiwanese listed
companies’ annual reports of the year 2012 to examine whether the financial reporting
under IFRS has more value relevance than Taiwanese GAAP. We find that, even though
the financial reporting under IFRS does not dominate in value relevance than Taiwanese
GAAP, the information of other comprehensive income items in IFRS do have additional
information content after controlling Taiwanese GAAP’s book values and earnings
information. More specifically, the incremental information content of other
comprehensive income items contributes to the IFRS foreign exchange gains or losses
item.
Keywords：IFRS, Taiwanese GAAP, Value relevance.
1
I. INTRODUCTION
Taiwan adopted IFRS beginning January 1, 2013. According to IFRS 1, its date of
transition to IFRS was January 1, 2012. Taiwanese listed companies, as first-time
adopters, 1 were required to present reconciliations of their equity reported under
Taiwanese GAAP to their equity under IFRS at the date of transition to IFRS. Fan and
Hsu (2013) document positive stock market reactions to the adjustments to equity from
Taiwanese GAAP to IFRS for the electronic industry in Taiwan. Peng et al. (2013) find
negative relationship between firms’ accounting quality and their IFRS initial adoption
reconciliations to equity, and this phenomenon is more serious for firms which provide
only the information of total reconciliation differences but ignore the information of
recognition and presentation (reclassification) reconciliation differences. Their findings
indicate that firms may strategically use IFRS initial adoption reconciliations to increase
their equity value for future use, and that firms’ disclosure policies matter.
The year 2012 was the comparative period of IFRS initial adoption, where
Taiwanese listed companies should present their financial reporting both under
Taiwanese GAAP as well as under IFRS. This study uses Taiwanese listed companies’
annual reports of the year 2012 to examine whether the financial reporting under IFRS
has more value relevance than Taiwanese GAAP. The results show that, using Ohlson
(1995) model as a metric, even though the financial reporting under IFRS does not
dominate in value relevance than that under Taiwanese GAAP, the information of other
comprehensive income items do have additional information content after controlling
1 There were no voluntary earlier adopters of IFRS in Taiwan as of January 1, 2012.
2
Taiwanese GAAP’s book values and earnings information. More specifically, the
additional information content of other comprehensive income items contributes to the
IFRS foreign exchange gains or losses.
This study contributes to the related literature in several aspects. First, using the
comparative period’s financial reporting information of initial adopting IFRS in Taiwan,
this study concurrently compares the value relevance of accounting information under
IFRS with that under Taiwanese GAAP. This approach has the advantage to control the
economic environment and other confounding factors affecting the analysis. Second,
while prior research documents the impacts of adopting IFRS on the value relevance of
accounting information for individual countries, such as the UK, Australia, France, Spain,
Finland, and Greece, etc., this study fills the gap of the related literature by adding the
evidence from Taiwan. Finally, while Fan and Hsu (2013) document the stock market
reactions to the adjustments to equity from Taiwanese GAAP to IFRS, and Peng et al.
(2013) provide evidence for the relationship between firms’ accounting quality and their
IFRS initial adoption reconciliations to equity, this study continues this vein of research
and examines the value relevance of IFRS information, further exploring the economic
consequences of initial adopting IFRS in Taiwan.
The remainder of the paper is organized as follows. Section II reviews the related
literature. Section III describes the research question, research methodology, and data.
Section IV presents the empirical results and Section V concludes.
3
II. RELATED LITERATURE
Prior research regarding the value relevance of IFRS information relevance shows
mixed results. On the positive side, Harris and Muller (1999) document that the
reconciliations between IFRS and U.S. GAAP are value relevant. Bartov et al. (2005),
Hung and Subramanyam (2007), and Jermakowicz et al. (2007) suggest that IFRS is more
value relevant than German GAAP. Horton and Serafeim (2010) find that the earnings
adjustments from UK to IFRS are value relevant. Devalle et al. (2010) document that the
value relevance of earnings increased following the introduction of IFRS in Germany,
France, and the UK, while the value relevance of book value of equity decreased in
Germany, Spain, France, and Italy. Dimitropoulos et al. (2013) suggest that the adoption
of IFRS in Greece leaded to greater value relevance, more timely loss recognition, and
less earnings management of financial reporting, compared to the local Greek accounting
standards.
On the other hand, Niskanen et al. (2000) document that the reconciliations from
Finnish GAAP to IFRS do not appear to be value relevant. Lin and Chen (2005) find that
Chinese GAAP is more value relevant than IFRS. Callao et al. (2007) suggest that the
adoption of IFRS in Spain results in more comparability but no improvement in the value
relevance of accounting reporting. Hassan et al. (2009) suggest that, based on a sample of
Egyptian listed firms over the period 1995 to 2002, the mandatory disclosure of the
International Accounting Standards (IAS) has a highly significant negative relationship
with firm value, while the voluntary disclosure has a positive but insignificant association
with firm value.
4
Regarding the economic consequences of initial adopting IFRS in Taiwan, Fan and
Hsu (2013) document positive stock market reactions to the adjustments to equity from
Taiwanese GAAP to IFRS for the electronic industry in Taiwan. Peng et al. (2013)
examine the relationship between IFRS initial adoption reconciliations and accounting
quality. They find that the lower the firms’ accounting quality (higher value of real
earnings management), the higher the IFRS initial adoption reconciliations of equity, and
this phenomenon is more serious for firms which provide only the information of total
reconciliation differences but ignore the information of reconciliation differences in
recognition and presentation (reclassification). Their findings indicate that firms may
strategically use IFRS initial adoption reconciliations to increase their equity value for
future use, and that firms’ disclosure policies matter.
Following this vein of literature, this study compares the value relevance of financial
reporting under Taiwanese GAAP with that under IFRS using the first comparative
period’s financial reporting of initial adopting IFRS in Taiwan, aiming at examining the
impacts of implementing IFRS in Taiwan and filling the gap of the related literature.
III. RESEARCH QUESTIONS AND METHODOLOGY
Research Questions and Methodology
Taiwan adopted IFRS beginning January 1, 2013. According to IFRS 1, its date of
transition to IFRS was January 1, 2012. Taiwanese listed companies, as first-time
adopters, were required to present reconciliations of their equity reported under
Taiwanese GAAP to their equity under IFRS at the date of transition to IFRS. The year
5
2012 was the comparative period where Taiwanese listed companies should present their
financial reporting both under Taiwanese GAAP as well as under IFRS. Taiwan’s first
IFRS reporting period would be the year 2013, and its first IFRS reporting date would be
December 31, 2013.
Taiwanese listed companies have already released their 2012 annual reports, which
consist of financial information both under Taiwanese GAAP as well as under IFRS. This
offers a good opportunity to compare the value relevance of financial information under
Taiwanese GAAP with that under IFRS.
Many researches document that the reconciliations from local GAAP to IFRS are
value relevant (Fan and Hsu 2013; Harris and Muller 1999; Horton and Serafeim 2010).
Others suggest that IFRS is more value relevant than local GAAP (Bartov et al. 2005;
Dimitropoulos et al. 2013; Hung and Subramanyam 2007; Jermakowicz et al. 2007).
However, still other researches provide evidence showing that IFRS does not dominate
local GAAP in value relevance of financial information (Callao et al. 2007; Lin and Chen
2005; Niskanen et al. 2000).
Because prior research regarding the value relevance of IFRS information shows
mixed results, and Taiwan is still in its early stage of implementing IFRS, we select to
develop research question only instead of developing formal hypothesis. Our research
question is:
Q1: Is the accounting information under IFRS more value relevant than that under
Taiwanese GAAP?
6
We use the following Ohlson’s (1995) model to test the research question:
tiktik
kTGAAP
TGAAP
TGAAP
TGAAP
TGAAPti Industry
TA
NI
TA
BV
TAMV
ti
ti
ti
ti
ti,,,210
,
1,
,
1,
,
1,
εβααα +∑+++=−−−
(1)
tiktik
kTGAAP
IFRS
TGAAP
IFRS
TGAAPti Industry
TA
NI
TA
BV
TAMV
ti
ti
ti
ti
ti,,,210
,
1,
,
1,
,
1,
εβααα +∑+++=−−−
(2)
tiktik
kTGAAP
IFRS
TGAAP
IFRS
TGAAPti Industry
TA
CI
TA
BV
TAMV
ti
ti
ti
ti
ti,,,210
,
1,
,
1,
,
1,
εβααα +∑+++=−−−
(3)
where MVt is the market value of common equity of the year 2012 and at three months
after the end of the year 2012;2 TGAAPtBV and IFRS
tBV are Taiwanese GAAP and IFRS
book values at the end of year 2012, respectively; TGAAPtNI and IFRS
tNI are Taiwanese
GAAP and IFRS earnings information measured by net income after taxes of the year
2012, respectively; IFRStCI is IFRS comprehensive income of the year 2012; and
TGAAPtTA 1− is the total assets of Taiwanese GAAP at the beginning of year 2012. Our
research question investigates if the value relevance of IFRS information is higher than
that of Taiwanese GAAP. We use Vuong (1989) Z-statistics, as adopted by Dechow
(1994), to discriminate the accounting information of IFRS and Taiwanese GAAP. A
significant positive Z-statistic indicates that Taiwanese GAAP is rejected in favor of
IFRS.
2 This is to ensure that investors have enough time to incorporate the reported financial statement
information into the market value of stocks.
7
According to International Accounting Standards 1 (IAS 1),3 a complete set of
financial statements includes, among others, a statement of comprehensive income for the
period to be presented either as: (i) one single statement of comprehensive income; or (ii)
a separate income statement and statement of comprehensive income. In this case, the
former must be presented immediately before the latter. [IAS 1.12] The major difference
between IFRS and Taiwanese GAAP is that the financial reporting under IFRS requires a
statement of comprehensive income which includes other comprehensive income items
(OCI), whereas the financial reporting under Taiwanese GAAP presents only an income
statement, which excludes OCI. It is worthwhile to investigate if investors realize that
OCI is value relevant when they see OCI information on the face of the statement of
comprehensive income. Our second research question is:
Q2: Does the information of other comprehensive income items in IFRS’s
comprehensive income statement have incremental information content after
controlling Taiwanese GAAP’s book values and earnings information?
To test the incremental information content of OCI, we use the following two
models:
tiktik
kTGAAPti
TGAAPti
TGAAPti
TGAAP
TGAAPti
TGAAP
TGAAP
TGAAPti
IndustryTAOCI
TANI
TABV
TANI
TA
BV
TAMV
ti
IFRS
ti
TGAAPIFRS
ti
TGAAPIFRS
titi
ti
ti
,,,,
5
,4
,3
,210
,
1,
1,1,1,1,
,
1,
εβα
ααααα
+∑++
++++=
−
−
−
−
−
−−− (4)
3 International Accounting Standards (IAS) issued by the International Accounting Standards Committee
(IASC), the predecessor to the International Accounting Standards Board (IASB), if not superseded, constitute the whole set of IFRS.
8
tiktik
k
TGAAPti
TGAAPti
TGAAPti
TGAAPti
TGAAPti
TGAAPti
TGAAPti
TGAAPti
TGAAP
TGAAPti
TGAAP
TGAAP
TGAAPti
Industry
TA
OthersOCI
TA
PensionRelOCI
TA
lOCITaxOCI
TA
OthCIEqtOCI
TA
elAveSaleUnrOCI
TA
FrExchOCI
TA
NI
TA
BV
TA
NI
TA
BV
TA
MV
ti
IFRS
ti
IFRS
ti
IFRS
ti
IFRS
ti
IFRS
ti
IFRS
ti
TGAAPIFRS
ti
TGAAPIFRS
titi
ti
ti
,,,
,10
,9
,8
,7
,6
,5
,4
,3
,210
,
1,1,1,
1,1,1,
1,1,1,1,
,
1,
__Re_
___
εβ
ααα
ααα
ααααα
+∑+
+++
+++
++++=
−−−
−−−
−
−
−
−
−−−
(5)
where TGAAPIFRStBV − is the difference between IFRS and Taiwanese GAAP book
values at the end of year 2012; TGAAPIFRStNI − is the difference between IFRS and
Taiwanese GAAP earnings information measured by net income after taxes of the year
2012; IFRStOCI is the information of other comprehensive income items in IFRS’s
comprehensive income statement of the year 2012. Under IFRS, IFRStOCI includes
foreign exchange gains or loss (OCI_FrExchIFRS), unrealized gains and losses on
available-for-sale securities (OCI_AveSaleUnrelIFRS), share of other comprehensive
income of associated and joint ventures accounted for using the equity method
(OCI_OthCIEqtIFRS), income tax related to components of other comprehensive income
(OCI_TaxRelOCIIFRS), actuarial gains and losses on defined benefit (OCI_PensionRelIFRS),
and others (OCI_OthersIFRS). Other variable definitions refer to those in Eq. (1).
Data and Sample Selection
According to IFRS 1, Taiwanese listed companies were required to present the
accounting information both under IFRS and Taiwanese GAAP for the year 2012, the first
comparative period for initial adopting IFRS in Taiwan. The initial sample for the year
9
2012 consists of 1,427 firms except for the financial and banking industry. After
removing observations with missing values, the final sample are 1,368 firms for
Taiwanese GAAP and IFRS sample with available net income, and 1,316 firms for IFRS
with available other comprehensive income items. All financial and market value data are
extracted from Taiwan Economic Journal database (TEJ). Typically, all variables are
deflated by the total assets of Taiwanese GAAP of year 2011 to control for scale
differences. In addition, each variable except dummy variable used in regression models
has been winsorized at the 1st and 99th percentiles to control for the effect of outliers.
Table 1 presents the descriptive statistics of all research variables deflated by total
assets of Taiwanese GAAP at the end of year 2011. On average, the distributions of
scaled Taiwanese GAAP book values and earnings measured by net income after taxes
are similar with those of IFRS. Average IFRS net income after taxes scaled by total assets
of Taiwanese GAAP of year 2011 is about 0.0308 and average IFRS other comprehensive
income is about 0.0010. The magnitude of the average values of scaled foreign exchange
gains or loss and losses on available-for-sale securities are larger than that of other items
in IFRS other comprehensive income items.
[Insert Table 1 Here]
Table 2 presents results of correlation analysis between the research variables with
Pearson correlations in the right-hand side and Spearman correlations in the left-hand
side. As we can see, both the scaled market value at the end of year 2012
(MV2012_Dec/ TGAAPTA2011 ) and three months after the end of year 2012 (MV2013_Mar/ TGAAPTA2011 )
are strongly positively correlated with Taiwanese GAAP book values
10
( TGAAPBV2012TGAAPTA2011/ , 0.648) and net income ( TGAAPNI2012
TGAAPTA2011/ , 0.52). We also obtain
similar correlation structure among MV2012_Dec/ TGAAPTA2011 (MV2013_Mar/ TGAAPTA2011 ),
IFRSBV2012TGAAPTA2011/ and IFRSNI2012
TGAAPTA2011/ . In particular, the correlation coefficient
between the market value and book values is more positive compared to the correlation
coefficient between the market value and net income under both standards. For example,
MV2012_Dec/ TGAAPTA2011 is positive correlated to TGAAPBV2012TGAAPTA2011/ and IFRSBV2012
TGAAPTA2011/
with coefficients above 0.60, whereas the correlation between MV2012_Dec/ TGAAPTA2011 and
IFRSBV2012TGAAPTA2011/ or IFRSNI2012
TGAAPTA2011/ is about 0.52. This correlation supports the
intuitive idea that book values appears to be more value relevant than earnings. In
addition, there is positive significant correlation between market value and IFRS other
comprehensive income with correlation coefficient 0.107. However, we find that there are
no significant relationship between the market value and TGAAPIFRSBV −2012 / TGAAPTA2011 and
TGAAPIFRSNI −2012 / TGAAPTA2011 .
[Insert Table 2 Here]
IV. EMPIRICAL RESULTS
The Comparison of the Value-Relevance between IFRS and Taiwanese GAAP
Information
Our research question investigates if the value relevance of IFRS information is
higher than that of Taiwanese GAAP. Panel A of Table 3 presents the results of the OLS
regression of book values (BV) and net income after tax (NI) on market values (MV) for
11
both accounting standards (Eqs. (1), (2) and (3)). Following Dimitropoulos et al. (2013),
we show the results for pre- and post-announcement of 2012 annual reports. That is, we
relate the market values of both at the end of year 2012 and three months after the end of
year 2012 to the book values and net income after tax of year 2012.4 We find that book
values (BV) and net income after tax (NI) are value relevant for both accounting standards.
And the comprehensive income (CI) under IFRS is also value relevant.
Panel B of Table 3 provides the results of comparing the value relevance of IFRS
with Taiwanese GAAP. The evidence shows that the financial reporting under IFRS does
not dominate in value relevance than Taiwanese GAAP.
[Insert Table 3 Here]
The Value Relevance of Reconciliations of Book Values and Net Income from
Taiwanese GAAP to IFRS
Our second research question investigates the value relevance of reconciliations of
book values and net income from Taiwanese GAAP to IFRS. In doing so, we decompose
BVIFRS into BVTGAAP and BVIFRS-TGAAP, which is calculated by subtracting Taiwanese
GAAP book values from IFRS book values. In the same vein, NIIFRS is decomposed into
NITGAAP and NIIFRS-TGAAP, which is calculated by subtracting Taiwanese GAAP net income
from IFRS net income. First, we estimate Eq. (4) to examine the relation between
MV2012_Dec/ TGAAPTA2011 (MV2013_Mar/ TGAAPTA2011 ) and BVIFRS-TGAAP and NIIFRS-TGAAP but exclude
IFRS other comprehensive income items. If the IFRS reconciliations are value-relevant,
4 According to Article 36 of Taiwan’s Securities and Exchange Act, Taiwanese listed companies should publicly announce and register with the Competent Authority financial reports duly audited and attested by a certified public accountant, approved by the board of directors, and recognized by the supervisors within three months after the close of each fiscal year.
12
then we expect TGAAPIFRSBV −2012 / TGAAPTA2011 and TGAAPIFRSNI −
2012 / TGAAPTA2011 to be positively
and significantly related to MV2012_Dec/ TGAAPTA2011 (MV2013_Mar/ TGAAPTA2011 ). As presented in
Table 4, the coefficient of TGAAPIFRSBV −2012 / TGAAPTA2011 is positive but insignificant related
to MV2012_Dec/ TGAAPTA2011 . However, TGAAPIFRSBV −2012 / TGAAPTA2011 is positively and
significantly related to MV2013_Mar/ TGAAPTA2011 (coefficient=2.851, p-value < 0.05), which
suggests that investors need time to incorporate the reported financial statement
information into their investment decisions.
In the light that the financial reporting under IFRS requires a statement of
comprehensive income which includes other comprehensive income items (OCI), we
estimate Eq. (4) to further examine the value relevance of IFRS other comprehensive
income items. Table 4 reports that the coefficients of IFRSOCI2012TGAAPTA2011/ are positive
and significant at the 1% level for both MV2012_Dec/ TGAAPTA2011 and MV2013_Mar/ TGAAPTA2011 ,
indicating that investors embedded the information of other comprehensive income items
under IFRS into stock valuation.
[Insert Table 4 Here]
The value relevance of the components of other comprehensive income items under
IFRS
Under IFRS, the difference between net income and comprehensive income is the
addition of other comprehensive income items, which include OCI_FrExchIFRS,
OCI_AveSaleUnrelIFRS, OCI_OthCIEqtIFRS, OCI_TaxRelOCIIFRS, OCI_PensionRelIFRS,
13
and OCI_OthersIFRS. Based on the findings in the estimation results of Eq. (4), we use Eq.
(5) to investigate if the components of other comprehensive income items under IFRS are
value relevant. As presented in Table 4, the coefficients of IFRSFrExchOCI 2012_ / TGAAPTA2011
are positive and significant at the 1% level for MV2012_Dec/ TGAAPTA2011 (coefficient=11.779,
p-value < 0.01) and MV2013_Mar/ TGAAPTA2011 (coefficient=14.015, p-value < 0.01),
respectively. Other components of other comprehensive income items are all
insignificantly positive or negative. The findings strongly support the conclusion that the
incremental information content of IFRS other comprehensive income items attributes to
the foreign exchange gains or losses item.
Sensitivity Analysis
For the robustness of our results, we use the market value measured at four months
after the end of year 2012 in order to test the full acknowledge of investors of the
information in annual reports, both under IFRS and Taiwanese GAAP. The results in
Table 5 remain similar to those reported in Tables 4 and 5.
[Insert Table 5 Here]
V. CONCLUSIONS
Taiwan adopted IFRS beginning January 1, 2013. According to IFRS 1, its date of
transition to IFRS was January 1, 2012. Taiwanese listed companies, as first-time
adopters, were required to present reconciliations of their equity reported under
Taiwanese GAAP to their equity under IFRS at the date of transition to IFRS. Fan and
Hsu (2013) document the positive stock market reactions to adjustments to equity from
14
Taiwanese GAAP to IFRS for the electronic industry in Taiwan. Peng et al. (2013)
provide evidences that the lower the firms’ accounting quality (higher value of real
earnings management), the higher the IFRS initial adoption reconciliations of equity, and
this phenomenon is more serious for firms which provide only the information of total
reconciliation differences, but ignoring the information of differences in recognition and
presentation.
The year 2012 was the comparative period as defined by IFRS 1, where Taiwanese
listed companies were required to present annual reports both under Taiwanese GAAP as
well as under IFRS. This study compares the value relevance of their accounting
information. The results show that even though the financial reporting under IFRS does
not dominate in value relevance than Taiwanese GAAP, the information of other
comprehensive income items under IFRS do have incremental information content after
controlling Taiwanese GAAP’s book values and earnings information. More specifically,
the incremental information content of other comprehensive income items contributes to
the foreign exchange gains or losses item.
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18
TABLE 1
Descriptive Statistics
Variable N Mean Std. Dev. 25% Median 75%
TGAAPDec
TAMV
2011
_2012
1368 0.9571 0.9433 0.4173 0.6514 1.1331
TGAAPMar
TA
MV
2011
_2013 1368 1.0469 1.0765 0.4439 0.6944 1.2131
TGAAP
TGAAP
TABV
2011
1368 0.6080 0.2172 0.4685 0.5905 0.7448
TGAAP
IFRS
TABV
2011
1368 0.6027 0.2208 0.4611 0.5855 0.7381
TGAAP
TGAAP
TANI
2011
1368 0.0315 0.0921 -0.0032 0.0318 0.0765
TGAAP
IFRS
TANI
2011 1368 0.0308 0.0921 -0.0066 0.0308 0.0749
TGAAP
IFRS
TACI
2011
1324 0.0265 0.0919 -0.0129 0.0246 0.0718
TGAAP
TGAAPIFRS
TABV
2011
− 1368 -0.0050 0.0179 -0.0081 -0.0032 -0.0003
TGAAP
TGAAPIFRS
TANI
2011
− 1368 -0.0012 0.0111 -0.0005 0 0.0006
TGAAP
IFRS
TAOCI
2011
1316 0.0010 0.0112 -0.0103 -0.0039 -0.0002
TGAAP
IFRS
TAOCI_FrExch
2011
1316 -0.0049 0.0068 -0.0091 -0.0031 0
TGAAP
IFRS
TAeUnrelOCI_AveSal
2011
1316 -0.0055 0.0065 0 0 0.0003
TGAAP
IFRS
TAqtIOCI_OthCIE
2011
1316 0.0010 0.0006 0 0 0
TGAAP
IFRS
TAOCIOCI_TaxRel
2011
1316 -0.0001 0.0007 0 0 0.0002
TGAAP
IFRS
TAnRelOCI_Pensio
2011
1316 0.0003 0.0020 -0.0012 -0.0002 0
(continued on next page)
19
TABLE 1 (continued)
Variable N Mean Std. Dev. 25% Median 75%
TGAAP
IFRS
TAOCI_Others
2011
1316 -0.0001 0.0002 0 0 0
MV is the market value of common equity of the year 2012 and at three months after the end of the year 2012; BVTGAAP is Taiwanese GAAP book value at the end of year 2012; BVIFRS is IFRS book value at the end of year 2012; NIGAAP is Taiwanese earnings information measured by net income after taxes of the year 2012; NIIFRS is IFRS earnings information measured by net income after taxes of the year 2012; CIIFRS is IFRS comprehensive income of the year 2012; BVIFRS-TGAAP is the difference between IFRS and Taiwanese GAAP book values of the year 2012; NIIFRS-TGAAP is the difference between IFRS and Taiwanese GAAP earnings information measured by net income after taxes of the year 2012. OCIIFRS is the information of other comprehensive income items in IFRS’s comprehensive income statement of the year 2012.OCI_FrExchIFRS is the IFRS foreign exchange gains or loss scaled by IFRS total assets of the year 2012; OCI_AveSaleUnrelIFRS is the IFRS unrealized gains and losses on available-for-sale securities scaled by IFRS total assets of year 2011; OCI_OthCIEqtIFRS is the IFRS share of other comprehensive income of associated and joint ventures accounted for using the equity method scaled by IFRS total assets of the year 2012; OCI_TaxRelOCIIFRS is the IFRS income tax related to components of other comprehensive income scaled by IFRS total assets of the year 2012; OCI_PensionRelIFRS is the IFRS actuarial gains and losses on defined benefit scaled by IFRS total assets of the year 2012; OCI_OthersIFRS is calculated by subtracting the IFRS foreign exchange gains or loss, unrealized gains and losses on available-for-sale securities, share of other comprehensive income of associated and joint ventures accounted for using the equity method, income tax related to components of other comprehensive income, and actuarial gains and losses on defined benefit from OCIIFRS.
TABLE 2
Correlation Analysis
TGAAPDec
TAMV
2011
_2012 TGAAP
Mar
TAMV
2011
_2012 TGAAP
TGAAP
TABV
2011
TGAAP
IFRS
TABV
2011
TGAAP
TGAAP
TANI
2011
TGAAP
IFRS
TANI
2011
TGAAP
TGAAPIFRS
TABV
2011
− TGAAP
TGAAPIFRS
TANI
2011
− TGAAP
IFRSP
TAOCI
2011
TGAAPDec
TAMV
2011
_2012 1 0.976*** 0.648*** 0.641*** 0.520*** 0.525*** 0.012 -0.028 0.107***
TGAAPMar
TAMV
2011
_2012 0.979*** 1 0.641*** 0.634*** 0.518*** 0.519*** 0.014 -0.048* 0.114***
TGAAP
TGAAP
TABV
2011
0.686*** 0.686*** 1 0.988*** 0.488*** 0.491*** 0.012 -0.034 0.078**
TGAAP
IFRS
TABV
2011
0.674*** 0.674*** 0.990*** 1 0.4670*** 0.485*** 0.137*** 0.037 0.089***
TGAAP
TGAAP
TANI
2011
0.659*** 0.665*** 0.459*** 0.442*** 1 0.978*** -0.100*** -0.123*** -0.030
TGAAP
IFRS
TANI
2011
0.647*** 0.650*** 0.458*** 0.456*** 0.974*** 1 -0.025 0.046* -0.031
TGAAP
TGAAPIFRS
TABV
2011
− -0.087*** -0.091*** -0.057** 0.012 -0.142*** -0.119*** 1 0.380*** 0.086***
TGAAP
TGAAPIFRS
TANI
2011
− -0.004 -0.017 0.009 0.021 -0.044 0.043 -0.109*** 1 -0.019***
TGAAP
IFRSP
TAOCI
2011
0.106*** 0.101*** 0.081*** 0.082*** -0.010 -0.018 0.039 -0.043 1
*, **, *** indicate significance at 0.10, 0.05 and 0.01 significance levels, respectively, using a two-sided test. The above table provides the correlation analyses for the sample observations of 2012. Pearson (Spearman) correlations are above (below) the diagonal. Variable definitions refer to Table 1.
21
TABLE 3 The Comparison of the Value Relevance between IFRS and Taiwanese GAAP: Evidence from 2012 Annual Report
Panel A. Regression resultsa
tiktik
kTGAAP
TGAAP
TGAAP
TGAAP
TGAAPti Industry
TA
NI
TA
BV
TA
MV
ti
ti
ti
ti
ti
,,,210,
1,
,
1,
,
1,
εβααα +∑+++=−−−
(1)
tiktik
kTGAAP
IFRS
TGAAP
IFRS
TGAAPti Industry
TA
NI
TA
BV
TA
MV
ti
ti
ti
ti
ti
,,,210,
1,
,
1,
,
1,
εβααα +∑+++=−−−
(2)
tiktik
kTGAAP
IFRS
TGAAP
IFRS
TGAAPti Industry
TA
CI
TA
BV
TA
MV
ti
ti
ti
ti
ti
,,,210,
1,
,
1,
,
1,
εβααα +∑+++=−−−
(3)
Variables
Eq. (1) Eq. (2) Eq. (3)
TGAAPDec
TA
MV
2011
_2012 TGAAP
Mar
TA
MV
2011
_2013 TGAAP
Dec
TA
MV
2011
_2012 TGAAP
Mar
TA
MV
2011
_2013 TGAAP
Dec
TA
MV
2011
_2012 TGAAP
Mar
TA
MV
2011
_2013
TGAAP
TGAAP
TABV
2011
2.039*** (21.045)
2.314*** (20.575)
− − − −
TGAAP
TGAAP
TANI
2011
2.778*** (12.326)
3.166*** (12.100)
− − − −
(continued on next page)
22
TABLE 3 (continued)
Eq. (1) Eq. (2) Eq. (3)
Variables TGAAPDec
TA
MV
2011
_2012 TGAAP
Mar
TA
MV
2011
_2013 TGAAP
Dec
TA
MV
2011
_2012 TGAAP
Mar
TA
MV
2011
_2013 TGAAP
Dec
TA
MV
2011
_2012 TGAAP
Mar
TA
MV
2011
_2013
TGAAP
IFRS
TABV
2011
− −
1.977*** (20.639)
2.260*** (20.298)
1.933*** (19.718)
2.176*** (19.166)
TGAAP
IFRS
TANI
2011
− −
2.844*** (12.631)
3.179*** (12.145)
− −
TGAAP
IFRS
TACI
2011
− − − −
2.907*** (12.566)
3.330*** (12.432)
Intercept -0.328***
(-3.623) -0.392***
(-3.727) -0.287*** (-3.235)
-0.351*** (-3.353)
-0.263*** (-2.823)
-0.315*** (-2.916)
Industry dummy Yes Yes Yes Yes Yes Yes
Adj-R2 0.524 0.507 0.522 0.504 0.522 0.506
N 1,368 1,368 1,368 1,368 1,324 1,324
(continued on next page)
23
TABLE 3 (continued)
Panel B. Results of comparing IFRS with Taiwanese GAAP
Dependent variable Independent variables Vuong’s Z statisticb Probability
TGAAPDec
TA
MV
2011
_2012
(TGAAP
IFRS
TABV
2011
,TGAAP
IFRS
TANI
2011
) vs. (TGAAP
TGAAP
TABV
2011
,TGAAP
TGAAP
TANI
2011
) -0.469 0.681
(TGAAP
IFRS
TABV
2011
,TGAAP
IFRS
TACI
2011
) vs. (TGAAP
TGAAP
TABV
2011
,TGAAP
TGAAP
TANI
2011
) -0.488 0.687
TGAAPMar
TA
MV
2011
_2013
(TGAAP
IFRS
TABV
2011
,TGAAP
IFRS
TANI
2011
) vs. (TGAAP
TGAAP
TABV
2011
,TGAAP
TGAAP
TANI
2011
) -0.582 0.720
(TGAAP
IFRS
TABV
2011
,TGAAP
IFRS
TACI
2011
) vs. (TGAAP
TGAAP
TABV
2011
,TGAAP
TGAAP
TANI
2011
) -0.130 0.552
*, **, *** indicate significance at 0.10, 0.05 and 0.01 significance levels, respectively, using a two-sided test.
The above table provides the regression results for the sample observations of 2012. b The Vuong (1989) Z-statistic as adopted in Dechow (1994) is performed for the value relevance for nonnested model selection; a significant
positive Z-statistic indicates that the value relevance of Taiwanese GAAP is rejected in favor of IFRS. Reported probabilities are from a
one-tailed test.
Variable definitions refer to Table 1.
24
TABLE 4 The Additional Information Content of Reconciliations of IFRS: Evidence from 2012 Annual Report
tiktik
kTGAAPti
TGAAPti
TGAAPti
TGAAP
TGAAPti
TGAAP
TGAAP
TGAAPti Industry
TA
OCI
TA
NI
TA
BV
TA
NI
TA
BV
TA
MV
ti
IFRS
ti
TGAAPIFRS
ti
TGAAPIFRS
titi
ti
ti,,,
,5
,4
,3
,210
,
1,1,1,1,1,
,
1,
εβαααααα +∑++++++=−−
−
−
−
−−−
(4)
tiktik
kTGAAPti
TGAAPti
TGAAPti
TGAAPti
TGAAPti
TGAAPti
TGAAPti
TGAAPti
TGAAP
TGAAPti
TGAAP
TGAAP
TGAAPti
IndustryTA
OthsOCI
TA
DebdefitOCI
TA
lOCITaxOCI
TA
OthCIEqtOCI
TA
elAveSaleUnrOCI
TA
FrExchOCI
TA
NI
TA
BV
TA
NI
TA
BV
TA
MV
ti
IFRS
ti
IFRS
ti
IFRS
ti
IFRS
ti
IFRS
ti
IFRS
ti
TGAAPIFRS
ti
TGAAPIFRS
titi
ti
ti
,,,,
10,
9,
8,
7
,6
,5
,4
,3
,210
,
1,1,1,1,
1,1,1,1,1,1,
,
1,
__Re__
__
εβαααα
ααααααα
+∑+++++
++++++=
−−−−
−−−
−
−
−
−−−
(5)
Variables
TGAAP
Dec
TA
MV
2011
_2012 TGAAP
Mar
TA
MV
2011
_2013
Eq. (4) Eq. (5) Eq. (4) Eq. (5)
TGAAP
TGAAP
TABV
2011
2.034*** (20.986)
1.998*** (20.267)
2.004*** (20.256)
2.305*** (20.502)
2.242*** (19.610)
2.252*** (19.618)
TGAAP
TGAAP
TANI
2011
2.809*** (12.413)
2.927*** (12.577)
2.974*** (12.773)
3.190*** (12.150)
3.329*** (12.333)
3.376*** (12.494)
(continued on next page)
25
TABLE 4 (continued)
TGAAP
Dec
TA
MV
2011
_2012 TGAAPMar
TA
MV
2011
_2013
Variables Eq. (4) Eq. (5) Eq. (4) Eq. (5)
TGAAP
TGAAPIFRS
TABV
2011
− 1.770 (1.601)
1.054 (0.930)
1.262 (1.103)
2.851** (2.223)
2.064 (1.570)
2.351*
(1.171)
TGAAP
TGAAPIFRS
TANI
2011
− 0.340 (0.194)
1.771 (0.983)
1.661 (0.921)
-1.785 (-0.879)
-0.136 (-0.065)
-0.278 (-0.133)
TGAAP
IFRS
TAOI
2011
− 4.325***
(2.602) − − 5.721***
(2.967) −
TGAAP
IFRS
TAOCI_FrExch
2011
− − 11.779*** (4.149)
− − 14..253***
(4.253)
TGAAP
IFRS
TAeUnrelOCI_AveSal
2011
− − -1.978
(-0.698) − −
-1.692 (-0.514)
TGAAP
IFRS
TAqtIOCI_OthCIE
2011
− − -3.882
(-0.124) − −
16.020 (0.439)
TGAAP
IFRS
TAlOCIOCI_Tax
2011
Re
− − -7.332
(-0.268) − −
-3.030 (-0.095)
TGAAP
IFRS
TAnRelOCI_Pensio
2011
− − 12.402 (1.319)
− − 14.224 (1.304)
TGAAP
IFRS
TAOCI_Others
2011
− − 57.196 (0.655)
− − 89.929 (0.887)
(continued on next page)
26
TABLE 4 (continued)
TGAAP
Dec
TA
MV
2011
_2012 TGAAP
Mar
TA
MV
2011
_2013
Variables Eq. (4) Eq. (5) Eq. (4) Eq. (5)
Intercept -0.319***
(-3.517) -0.300*** (-3.190)
-0.241** (-2.533)
-0.377*** (-3.584)
-0.345*** (-3.169)
-0.277**
(-2.509)
Industry dummy Yes Yes Yes Yes Yes Yes
Adj-R2 0.524 0.529 0.533 0.508 0.512 0.515
N 1,368 1,316 1,316 1,368 1,316 1,316
*, **, *** indicate significance at 0.10, 0.05 and 0.01 significance levels, respectively, using a two-sided test. The above table provides the regression results for the sample observations of 2012. Variable definitions refer to Table 1.
26
TABLE 5
The Comparison of the Value Relevance between IFRS and Taiwanese GAAP: The Case of Market Value Measured four Months after the End of Year 2012
Variables Eq. (1) Eq. (2) Eq. (3) Eq. (4) Eq. (5)
TGAAP
TGAAP
TABV
2011
2.257*** (19.770)
− − 2.248*** (19.698)
2.186*** (18.836)
2.199*** (18.901)
TGAAP
TGAAP
TANI
2011
3.453*** (12.984)
− − 3.471*** (13.008)
3.625*** (13.211)
3.676*** (13.406)
TGAAP
IFRS
TABV
2011
−
2.201*** (19.456)
2.125*** (18.400)
− − −
TGAAP
IFRS
TANI
2011
−
3.453*** (12.963)
− − − −
TGAAP
IFRS
TACI
2011
− −
3.575*** (13.094)
− − −
TGAAP
TGAAPIFRS
TABV
2011
−
− − − 2.775**
(2.127) 2.015
(1.507) 2.332*
(1.729)
TGAAP
TGAAPIFRS
TANI
2011
− − − −
-2.157 (-1.044)
-0.592 (-0.279)
-0.771 (-0.363)
TGAAP
IFRS
TAOCI
2011
− − − −
5.912*** (3.015)
−
TGAAP
IFRS
TAOCI_FrExch
2011
− − − − − 15.697*** (4.692)
(continued on next page)
27
Table 5 (continued)
Variables Eq. (1) Eq. (2) Eq. (3) Eq. (4) Eq. (5)
TGAAP
IFRS
TAOCI_FrExch
2011
− − − − − 15.697*** (4.692)
TGAAP
IFRS
TAeUnrelOCI_AveSal
2011
− − − − − -2.392
(-0.716)
TGAAP
IFRS
TAqtIOCI_OthCIE
2011
− − − − − 10.005 (0.270)
TGAAP
IFRS
TAlOCIOCI_Tax
2011
Re
− − − − − 6.679
(0.207)
TGAAP
IFRS
TAnRelOCI_Pensio
2011
− − − − − 16.004 (1.444)
TGAAP
IFRS
TAOCI_Others
2011
− − − − − 131.185 (1.274)
Intercept -0.343***
(-3.209) -0.301*** (-2.824)
-0.260** (-2.357)
-0.328*** (-3.073)
-0.290*** (-2.618)
-0.215*
(-1.921) Industry dummy Yes Yes Yes Yes Yes Yes Adj-R2 0.498 0.493 0.494 0.499 0.502 0.507 N 1,369 1,369 1,325 1,369 1,317 1,317 *, **, *** indicate significance at 0.10, 0.05 and 0.01 significance levels, respectively, using a two-sided test.
The above table provides the regression results for the sample observations of 2012.
Variable definitions refer to Table 1.
