The adoption of full IFRS in 2011 is viewed as a favorable opportunity to add momentum to the globalization of Korea’s capital market as it brought about changes not only in the accounting environment of Korea but also in foreign investors’ perception of the Korean market. Marking the five years of Korea’s IFRS adoption, the KASB commissioned a research team consisting of Bong-Hee Han, Professor at Aju University, Jae-Kyung Lee, Professor at Kukmin University, Il-Hong Park, Senior Technical Manager at KASB, and Youngmi Seo, Technical Manager at KASB to carry out a research project on the effect of IFRS adoption on capital globalization. In order to effectively identify the effect of IFRS adoption on capital globalization from multiple angles, the research project included in-depth interviews and surveys of accounting or finance managers/executives of the domestic firms which listed their shares or issued their bonds overseas, managers/executives providing overseas deal services of domestic Big 4 accounting firms, and accounting or finance managers/executives of the domestic branches of foreign banks.

SUMMARY

This study investigates whether the usefulness of financial information of Korean firms is enhanced in terms of international comparability, relevance, reliability, quality, economic substance, accessibility, etc., following the full adoption of IFRS in Korea from year 2011.

This study also examines whether capital of Korean firms  became more globalized, that is, whether international financing of Korean firms increased through their overseas stock listings/bond issuances or foreign M&As of Korean firms, whether the risk of investment in Korean firms decreased, and whether the so called ‘Korea Discount’ is mitigated, following the IFRS adoption in Korea.
In addition, provided that the IFRS adoption in Korea enhanced the usefulness of financial information of Korean firms, this study evaluates whether the enhancement of usefulness of financial information helps Korean firms to globalize their capital further.

At first, this study performed descriptive analyses with the past market data to see if foreign investment in Korean firms, including direct investment, portfolio investment, and M&A, increased and if foreign investment was expanded to a larger set of target Korean firms after the IFRS adoption in Korea.

This study was implemented mainly through the analyses on intensive interviews and questionnaire surveys. The subjects of interviews and surveys were accounting or finance managers/executives of the domestic firms which listed their shares or issued their bonds overseas, managers/executives providing overseas deal services of domestic Big 4 accounting firms, and accounting or finance managers/executives of the domestic branches of foreign banks.

Intensive face-to-face interviews were conducted to examine any changes in accounting works and systems after the IFRS adoption and any impact of IFRS adoption on overseas stock listing or bond issuance practices of domestic firms, on overseas deal services of domestic Big 4 accounting firms, and on domestic lending and investing activities of foreign banks.

Questionnaire surveys were conducted to figure out whether the burden of works in accounting and financial reporting of domestic firms which listed their shares or issued their bonds overseas increased or decreased after the IFRS adoption, whether usefulness of financial information of domestic firms in terms of international comparability, relevance, etc. is enhanced after the IFRS adoption, and whether capital of domestic firms became more globalized after the IFRS adoption.

This study is expected to help evaluate whether usefulness of financial information of domestic firms is enhanced from the viewpoint of foreign investors and whether foreign investment in Korean firms increased after the IFRS adoption.

This study is also expected to help evaluate whether IFRS adoption helps Korean firms to obtain better access to overseas capital markets, and consequently whether international financing such as overseas stock listings/bond issuances or foreign M&As increased after the IFRS adoption.