How Compliance with Ifrs7 Effect Bank Value: Evidence from Malaysian Banks

Abstract

This research investigates the effect of compliance with IFRS7; an important financial disclosure measure on its value particularly on Malaysia’s banks for the years 2017 to 2022. IFRS7 is developed by the international accounting standards board (IASB), which requires financial instruments disclosures that offer information on bank’s position and profitability as well as credit, liquidity and market risks. The aim of this study is to assess how adherence to these disclosure requirements influences two key measures of bank value: market-to-book ratio: Tobin’s Q, which measures the differential between goods and services market value and the asset reproduction cost; Market Capitalization: the gross market value of a bank. The study is triggered by the need to understand the significance of the global accounting standards resulting from globalization and the significant role that IFRS has today as an influence, which leads to the promotion of transparency, enhancement of investors’ confidence, as well as achieving comparability in the financial reporting systems across countries. The study provides new knowledge to the existing theories by establishing the correlation pattern between compliance with IFRS7 and bank value in the context of the Malaysian banking segment that has its distinctive rules and conditions. The kind of research that has been used in this paper is the survey research method whereby data from 162 Malaysian banks on their stock exchange with the financial data collected from 2017 to 2022. Tobin’s Q and market capitalization are used in this study in determining bank value. In order to evaluate the level of IFRS7 implementation, we use ‘compliance index’, which is calculated on 76 elements from the banks’ reports. Further, we include variables that may have an impact on the bank value for instance; size, profitability, leverage and liquidity. The study uses the regression model as part of the panel data analysis technique to establish the direct relation between IFRS7 compliance and bank value controlling for the above variables.