The moderating role of the IFRS adoption on the relationship between financial reports opacity and future stock price crash risk: “Evidence from the non-financial firms listed on the Egyptian stock Exchange

The research aims to study and examine the impact of financial reports opacity on future stock price crash risk (future crash risk), in addition to study and examine the extent to which the strength and/or direction of this influence relationship varies with the International Financial Reporting Standards (IFRS) adoption, by applying to non-financial firms listed on the Egyptian Stock Exchange (EGX) during the period (2011-2019).
       Using a sample of 444 observations, and adopting the model of Chen et al. (2001) to measure and predict the future crash risk, the fundamental analysis findings indicated that the financial reports Opacity (measured by the modified Jones model) positively and significantly affects the future crash risk (measured by Negative Conditional Skewness of Returns). Meaning that the increase in the financial reports Opacity this year by 1% contributes to the increase in the future crash risk next year by 0.684%.
Using the model presented by DeFond et al. (2015), the fundamental analysis findings also indicated that the IFRS adoption negatively and insignificant affects the influencing relationship between the financial reports opacity and the future crash risk. By using an alternative proxy to measure the financial reports Opacity, the sensitivity analysis findings supported the same findings as the fundmental analysis, which reflects the robustness and strength of the findings.
It is expected that these findings will contribute to providing useful information to investors, financial analysts and accounting standard-setters to improve financial reporting and increase its transparency (decrease its opacity), in order to restrict management’s opportunistic behavior in bad news hoarding and negative information and not announcing or delaying it, and thus reducing the future crash risk, and then to control the abnormal fluctuations in the stock market, in order to preserve the wealth of community members.