Abstract
The adoption of International Financial Reporting Standard 17: Insurance Contracts (IFRS 17) represents one of the most significant changes in insurance accounting in recent years (Ernst & Young, 2023). Introduced by the International Accounting Standards Board (IASB) to address shortcomings of the previous standard, IFRS 17 provides a comprehensive standard to enhance transparency and comparability in financial statements. The standard sets expectations for enhancing the quality of financial reports, along with the challenges associated with implementing the new standard.
This study assesses whether the South African market responded significantly to the development and initial implementation of IFRS 17, employing an event study methodology in the study. Two types of events are identified: (i) the pre-adoption event related to IFRS 17's development, and (ii) the post-adoption event related to the initial issuance of financial statements under IFRS 17. The research focuses on insurers and banks listed on the Johannesburg Stock Exchange (JSE), as they are exposed to insurance contracts.
The study employed both parametric (cross-sectional t-test) and non-parametric (generalised signed test) methods to evaluate the statistical significance of the Cumulative Average Abnormal Returns (CAARs) within a short-horizon event window [-3,3], with an extended window applied as a robustness check [-10,10].
The research findings suggest that the market’s response to IFRS 17-related events aligns with earlier studies, which revealed a mix of positive and negative reactions across various events and periods. Importantly, the study revealed that the release of interim results elicited a modest positive response from the market, whereas the release of year-end financial results triggered a negative reaction. Nevertheless, the market's response to both the development and initial adoption of IFRS 17 was statistically insignificant, indicating that these events were not perceived as surprising or as new information by the market.
The findings offer new insights from an emerging market on IFRS-related event study research, illustrating how the market responded to the new standard. The response also highlights the potential of informational efficiency within the JSE to incorporate new information into share prices.