The persistence of earnings and earnings components after the adoption of IFRS

Abstract

PurposeThis paper seeks to examine the persistence of earnings and earnings components after the adoption of International Financial Reporting Standards (IFRS).Design/methodology/approachThe study analyses two years before and two years after the adoption of IFRS in order to examine whether the adoption of IFRS materially affects the persistence, as well as the explanatory power of earnings and earnings components.FindingsThe results confirm that disaggregating reported earnings into operating income, non‐operating income and extraordinary charge and credit, captures differences in the information content of the underlying events. Consequently, earnings disaggregation can be used to improve prediction of future profitability. The results suggest that IFRS measurement and reporting guidelines do not seem to improve the persistence of earnings and earnings components.Originality/valueThis is the first study that examines whether the mandatory adoption of IFRS has an impact on the information content of earnings components for future profitability.