Does <scp>IFRS</scp> Matter in the Indian Capital Market? A Domestic and Foreign Investor Perspective

This study investigates whether the implementation of International Financial Reporting Standards (IFRS) has an impact on shareholder value and foreign institutional participation in the Indian domestic stock market. The study specifically exploits the setting of regulatory demarcation in IFRS implementation based on a firm's net worth threshold and employs an event study approach coupled with difference‐in‐difference design to elucidate the effects of IFRS. The findings reveal a positive market reaction to IFRS‐related announcements, leading to a notable 4.26% increase in stock price for firms mandated to adhere to IFRS reporting. Notably, in terms of shareholder value, a sustained long‐term increase is observed only for firms that transitioned to IFRS. This increment accentuates the value enhancement brought about by IFRS in the Indian market. Additionally, the study also uncovers compelling evidence of a significant increase in foreign institutional investors’ ownership in IFRS‐compliant firms after the implementation. Overall, the study emphasizes the importance of IFRS frameworks for both domestic and foreign investors and yields relevant implications for diverse stakeholders engaged in the corporate reporting process, including firms, regulatory bodies, and standard setters.