Are IFRS Value-Relevant for Separate Financial Statements? Evidence from the Italian Stock Market

Using a sample of Italian firms, this paper investigates whether separate financial state-ments are useful to capital market investors, and whether International Financial ReportingStandards (IFRS) are more value-relevant than domestic generally accepted accountingprinciples (GAAP). These issues are key in evaluating the decision made by some statesin the European Union to extend the use of IFRS to separate financial statements. Thestudy provides evidence that separate financial statements are value-relevant, regardlessof the accounting standard set. However, contrary to expectations, separate financial state-ments under IFRS do not have incremental information content beyond domestic GAAP.There is even some evidence that domestic GAAP financial statements are more value-relevant than IFRS. Finally, this paper documents the important role of model specification in value-relevance studies.