Based on the notion that the effects of IFRS adoption are dependent on changes in the institutional environment, this paper analyzes the effects of one prominent feature of IFRS: the accounting for research and development (R&D) under IAS 38. In our setting, IFRS adoption is accompanied by a change in the national institutional environment of R&D disclosure in the management commentary. National disclosure regulations can make R&D capitalization more informative when investors are skeptical of capitalization due to reliability concerns. We find that firms with higher levels of R&D disclosures that are not suspect of earnings management generally have lower cost of capital and higher market values. Their cost of capital increase and market values decrease with higher R&D capitalization, indicating that capitalization introduces information uncertainty that cannot be resolved by better disclosure. The findings imply that the institutional effect of disclosure has a strong influence on IFRS informativeness.

Data Availability: All data used in this paper are publicly available and retrieved from companies' annual reports, the Thomson Datastream database, Thomson Reuters I/B/E/S Estimates database, and Hoppenstedt stock guide database.

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