Does Earnings Volatility Mediate the Relationship Between IFRS 15 and Firm Value? Evidence from Emerging Markets

Purpose- the purpose of this study is to (1) examine the influence of IFRS 15 on firm value (FV) in Egypt and (2) explore the mediating role of earnings volatility (EV) in this relationship.
Design/methodology/approach- The analysis is this study is based on 113 Egyptian firms, covering the period 2018 to 2023, with a total of 678 firm-year observations. To ensure robust empirical findings, this study employs Generalized Method of Moments (GMM) and Structural Equation Modeling (SEM) as analytical techniques.
Findings- Based on the signalling and agency theories, the results show that IFRS 15 exerts a direct positive influence on FV. Additionally, IFRS 15 decreases EV, which, in turn, adversely impacts FV. Moreover, the results suggest that EV serves as a mediator in the relationship between IFRS 15 and FV. Robustness analyses support the reliability of these findings. Further empirical tests reveal that IFRS 15 plays a moderating role, mitigating the negative nexus between EV and FV. Additionally, Sectoral analysis shows that the relationships among IFRS 15, EV, and FV differ across industries, indicating that IFRS 15’s impact is industry specific.
Originality/value- This study offers a unique contribution by addressing the scarcity of research on IFRS 15 and FV, particularly in emerging markets, amid ongoing debate regarding its impact. It fills a critical gap, while research on the mediating role of EV in this relationship remains limited.
Limitation- This study is constrained by a relatively small sample size and a lack of analysis across other countries within emerging markets.
Practical Implications– This study enhances the understanding of IFRS 15 adoption by examining its impact on FV and the mediating role of EV. It contributes to academic discourse and aids standard setters, regulators, and practitioners in assessing IFRS adoption across emerging markets. Additionally, it provides valuable insights for market participants, supporting informed investment decisions and risk evaluation.