Exploring the Relationship Between IFRS 15, Earnings Volatility, and Firm Value: Evidence from Pakistan (Journal of Social Research Development)

Summary

• The study investigates the impact of IFRS 15 on earnings volatility and firm value using a sample of 100 non-financial firms listed on the Pakistan Stock Exchange (PSX) from 2015 to 2024.p.1
• Fixed-effects regression indicates that IFRS 15 adoption reduces earnings volatility by a coefficient of -0.0087 (p < 0.01).p.9
• Model 2 shows that IFRS 15 adoption directly increases firm value with a positive coefficient of 0.214 (p < 0.01).p.10
• Mediation analysis confirms that reduced earnings volatility partially mediates 14.7% of the total positive impact of IFRS 15 on Tobin's Q.p.11

Key insights

1. Adoption of IFRS 15 significantly decreases corporate earnings volatility in listed Pakistani non-financial firms.p.1
2. Lower earnings volatility leads to enhanced firm valuation as measured by Tobin's Q.p.10
3. IFRS 15 adoption impacts firm value both directly through improved transparency and indirectly via reduced earnings volatility.p.11
4. Earnings volatility mediates 14.7% of the overall positive relationship between IFRS 15 implementation and firm valuation.p.11
5. Industries with complex contracting structures, such as Construction & Engineering, experience the greatest reduction in earnings volatility following IFRS 15 adoption.p.12
6. The positive effects of IFRS 15 implementation on earnings stability and valuation are more pronounced in firms audited by Big Four firms.p.13