I.3 statement of problem

the statement of problem is to test what are the impacts on economic

Activities, that is, on financial risks, investments, diversifications, mergers and Acquisitions and other key functions of finance after adoption of international

Financial reporting standards by Pakistani companies and to study whether disclosures

Under ifrs really have an impact on economic activities of the Pakistani companies or

Not.

as the necessity demands, the researcher has planned to study how ifrs has

Impacted key economic activities such as:

1) what is the impact on financial risk after voluntary adoption of ifrs by Pakistani

Companies?

2) What is the impact on investment activities after voluntary adoption of ifrs by

Pakistani companies?

3) what is the impact on merger and acquisition activities after voluntary adoption

Of ifrs by Pakistani companies?

4) What is the impact on diversification activities after voluntary adoption of ifrs

By Pakistani companies? 14

I.4 research question

The main purpose of this thesis is to examine the impact of firms’ voluntary

Ifrs adoption on economic activities. In order to empirically address the issue, the

Researcher employs four types of economic activities-financial risks, investment

Activities, merger and acquisition activities and diversification activities.

in the first study, given that, impact on financial risks measures the amount of

Firm-specific information being impounded into liquidity, profitability, leverage and

Market based ratio, the researcher investigates whether ifrs adoption has an impact

On financial risks. A detailed look at how ifrs adoption impacts economic activityfinancial risk is included in this research. The researcher hypothesizes that financial

Risks improved after adoption of ifrs voluntarily.

in the second study, given that, impact on investment activities measures the

Amount of firm-specific information being impounded into investments in fixed

Assets, investing cash flow and return on assets, the researcher investigates whether

Ifrs adoption has an impact on investment activities. A detailed look at how ifrs

Adoption impacts economic activity-investment activities is included in this research.

The researcher hypothesizes that investment activities increased after the adoption of

Ifrs voluntarily.

in the third study, given that, impact on mergers and acquisitions activities

Measure the amount of firm-specific information being impounded into diluted

Earnings per share (eps), equity ratio and operating risk, the researcher investigates

Whether ifrs adoption has an impact on mergers and acquisitions activities. A

Detailed look at how ifrs adoption impacts economic activity-mergers and

Acquisitions activities is included in this research. The researcher hypothesizes that

Mergers and acquisitions activities improved after the adoption of ifrs voluntarily.

In the fourth study, given that, impact on diversification activities measures

the amount of firm-specific information being impounded into growth and operating

cash flow, the researcher investigates whether IFRS adoption has an impact on

diversification activities. A detailed look at how IFRS adoption impacts economic

activity-diversification activities is included in this research. The researcher

hypothesizes that diversification activities increased after the adoption of IFRS

voluntarily.

I.5 SCOPE AND SIGNIFICANCE OF THE STUDY

This study is significant because Indian companies have started going abroad

to raise money and therefore they have to comply with the international accounting

standards. This gives importance to the use of IFRS being a single accounting

standard across the globe.

The scope of this research is restricted to listed Indian companies on National

Stock Exchange (NSE). NSE listed companies have to publish their financial annual

reports in the mandatory accounting principles as required in India. In addition to this,

some of these companies also publish their financial annual reports in IFRS

voluntarily in India. The foreign companies that have obligations to publish their

results in IFRS due to their multiple listing are excluded from this analysis.

This research will significantly contribute to accounting and finance

knowledge from the perspective of users of such information. The research also tries

to uncover factors influencing the economic activities like financial risk management,

investments, diversification and mergers and acquisitions in Indian companies and see

how these activities are affected by better disclosures through IFRS. 16

I.6 OBJECTIVES OF THE STUDY

The overall objective of the research is to study the impact on economic

activities due to voluntary adoption of IFRS by Indian companies. The specific

objectives are as follow

i. To study the existing accounting and disclosing norms;

ii. To know what made the companies under study to adopt IFRS voluntarily;

iii. To measure the impact on economic activities by adoption of IFRS; and

iv. To make suitable suggestions for better disclosures that would enhance the value

with such economic activities.

The adoption of accounting standards that requires high-quality, transparent,

and comparable information is welcomed by investors, creditors, financial analysts,

and other users of financial statements. It is difficult to compare worldwide

information without a common set of accounting and financial reporting standards.

The use of a single set of high quality accounting standards would facilitate

investment and other economic decisions across borders, increase market efficiency,

and reduce the cost of raising capital.

The motivation for this research is to evaluate the impact on economic

activities of Indian companies by disclosing their accounting information under IFRS.

As a matter of fact, better disclosures reduce the estimation risk of future earnings,

thereby reducing the cost of information asymmetry that occurs due to adverse

selection and risk premium which in turn reduces the financial risks faced by the

companies and increases the economic activities like investment activities,

diversifications, mergers and acquisitions and other key functions of finance. 17

I.7 HYPOTHESES OF THE STUDY

Based on the objectives of the study, the researcher hypothesizes the

following:

Hypothesis 1:

Ho: Financial risk did not improve after the adoption of IFRS voluntarily.

H1: Financial risk improved after the adoption of IFRS voluntarily.

Hypothesis 2:

Ho: Investment activities did not increase after the adoption of IFRS

voluntarily.

H1: Investment activities increased after the adoption of IFRS voluntarily.

Hypothesis 3:

Ho: Merger and acquisitions activities did not improve after the adoption of

IFRS voluntarily.

H1: Mergers and acquisitions activities improved after the adoption of IFRS

voluntarily.

Hypothesis 4:

Ho: Diversification activities did not increase after the adoption of IFRS

voluntarily.

H1: Diversification activities increased after the adoption of IFRS voluntarily.

OPERATIONAL DEFINITIONS

In order to test the hypotheses, the researcher needs to identify the different

variables. For this, the researcher analysed the important terms in the above

hypotheses.

Since each hypothesis is aimed to test specific economic activity due to IFRS 18

adoption, it is important to go deeper into each economic aspect of the above

hypotheses to operationalize these variables.