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Investors’ herding practice: do IFRS and national economic culture matter?

Purpose: The purpose of this paper is to examine the effect of International Financial Reporting Standards (IFRS) and the moderating role of national economic culture on investors’ herding practices in the European Union (EU) equity markets. Design/methodology/approach: The study employs and modify...

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Main Authors: Danrimi, Mohammed Lawal, Abdullah, Mazni, Alfan, Ervina
Format: Article
Published: Emerald 2018
Subjects:
HG Finance
Online Access:http://eprints.um.edu.my/22172/
https://doi.org/10.1108/MF-08-2017-0311
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spelling my.um.eprints.221722019-09-03T05:11:11Z http://eprints.um.edu.my/22172/ Investors’ herding practice: do IFRS and national economic culture matter? Danrimi, Mohammed Lawal Abdullah, Mazni Alfan, Ervina HG Finance Purpose: The purpose of this paper is to examine the effect of International Financial Reporting Standards (IFRS) and the moderating role of national economic culture on investors’ herding practices in the European Union (EU) equity markets. Design/methodology/approach: The study employs and modify two extensively applied herding measures of cross-sectional standard deviation and cross-sectional absolute deviation, using stock return dispersion as a function of aggregate market return as a proxy for herding behavior. The sample period stretches from January 1, 2001 until December 31, 2015. Findings: The study finds that mandatory IFRS adoption significantly promotes investors’ herding practice in the EU equity markets. However, taking a further look, the results suggest that the new reporting regime seems not to be the only instigator for the observed herding practice; national economic culture, particularly individualism and masculinity, contribute significantly toward investors’ herd-formation around the mandatory IFRS adoption. Overall, it can be concluded that the notion that the adoption of IFRS improves information-based trading and mitigates irrational investment behavior might totally be inaccurate in some instances. For example, in the case of herding bias, the new reporting regime appears to have promoted the phenomenon. Research limitations/implications: The study employs an approach of herd detection, which explores evidence of herding toward the market consensus. Thus, the results do not in any way exclude the possibility that other types of herding behavior exist in the EU equity markets. Notwithstanding this caveat, the findings of this study would be of special relevance to academics, regulators and policymakers in performing a cost-benefit analysis of the IFRS adoption. Originality/value: To the researchers’ knowledge, this study is first to explore the nexus between IFRS and investors’ herding practices, while highlighting the role of the national economic culture. Emerald 2018 Article PeerReviewed Danrimi, Mohammed Lawal and Abdullah, Mazni and Alfan, Ervina (2018) Investors’ herding practice: do IFRS and national economic culture matter? Managerial Finance, 44 (9). pp. 1117-1133. ISSN 0307-4358 https://doi.org/10.1108/MF-08-2017-0311 doi:10.1108/MF-08-2017-0311
institution Universiti Malaya
building UM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Malaya
content_source UM Research Repository
url_provider http://eprints.um.edu.my/
topic HG Finance
spellingShingle HG Finance
Danrimi, Mohammed Lawal
Abdullah, Mazni
Alfan, Ervina
Investors’ herding practice: do IFRS and national economic culture matter?
description Purpose: The purpose of this paper is to examine the effect of International Financial Reporting Standards (IFRS) and the moderating role of national economic culture on investors’ herding practices in the European Union (EU) equity markets. Design/methodology/approach: The study employs and modify two extensively applied herding measures of cross-sectional standard deviation and cross-sectional absolute deviation, using stock return dispersion as a function of aggregate market return as a proxy for herding behavior. The sample period stretches from January 1, 2001 until December 31, 2015. Findings: The study finds that mandatory IFRS adoption significantly promotes investors’ herding practice in the EU equity markets. However, taking a further look, the results suggest that the new reporting regime seems not to be the only instigator for the observed herding practice; national economic culture, particularly individualism and masculinity, contribute significantly toward investors’ herd-formation around the mandatory IFRS adoption. Overall, it can be concluded that the notion that the adoption of IFRS improves information-based trading and mitigates irrational investment behavior might totally be inaccurate in some instances. For example, in the case of herding bias, the new reporting regime appears to have promoted the phenomenon. Research limitations/implications: The study employs an approach of herd detection, which explores evidence of herding toward the market consensus. Thus, the results do not in any way exclude the possibility that other types of herding behavior exist in the EU equity markets. Notwithstanding this caveat, the findings of this study would be of special relevance to academics, regulators and policymakers in performing a cost-benefit analysis of the IFRS adoption. Originality/value: To the researchers’ knowledge, this study is first to explore the nexus between IFRS and investors’ herding practices, while highlighting the role of the national economic culture.
format Article
author Danrimi, Mohammed Lawal
Abdullah, Mazni
Alfan, Ervina
author_facet Danrimi, Mohammed Lawal
Abdullah, Mazni
Alfan, Ervina
author_sort Danrimi, Mohammed Lawal
title Investors’ herding practice: do IFRS and national economic culture matter?
title_short Investors’ herding practice: do IFRS and national economic culture matter?
title_full Investors’ herding practice: do IFRS and national economic culture matter?
title_fullStr Investors’ herding practice: do IFRS and national economic culture matter?
title_full_unstemmed Investors’ herding practice: do IFRS and national economic culture matter?
title_sort investors’ herding practice: do ifrs and national economic culture matter?
publisher Emerald
publishDate 2018
url http://eprints.um.edu.my/22172/
https://doi.org/10.1108/MF-08-2017-0311
_version_ 1646210164527726592
score 13.211869

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