The Impact of Institutional Ownership on the Effectiveness of Mandatory adoption of IFRS: A Stock Price Crash Risk Perspective

The main objective of this study is to measure the impact of institutional ownership on the effectiveness of the mandatory adoption of international financial reporting standards (IFRS), from the perspective of stock price crash risk. An empirical study is conducted using a sample of Egyptian firms listed on EGX100 during the period 2014 to 2019, whereas the final sample is 402 observations. The data are analyzed based on the two independent samples t-test, and the OLS regression. The results confirm that mandatory adoption of IFRS has an insignificant effect on stock price crash risk. This result can be explained under the Institutional theory, which assumes that the shortcomings in the legislative, legal and cultural infrastructures, such as weak investor protection systems and the weak role of regulatory and supervisory authorities in the emerging markets may constraint the desired goals of IFRS. However, the results confirm a significant effect of institutional ownership on the relationship between the mandatory adoption of IFRS and stock price crash risk. Stock price crash risk is decreased after the mandatory adoption of IFRS in the firms as the institutional ownership increases. This result is consistent with the agency theory, which emphasizes the governance role of institutional ownership in achieving the effectiveness of mandatory adoption of IFRS. Moreover, the results did not confirm any decrease in the effectiveness of institutional ownership in the highest levels of ownership. On the contrary, the results confirm that the highest levels of institutional ownership increase the effectiveness of mandatory adoption of IFRS. These results are useful to researchers, regulators, auditors, investors, and other stakeholders about the governance role of institutional ownership in the context of mandatory adoption of IFRS.