The Concurrent Effects of IFRS Mandate and Formal Institutional Quality on the Aftermarket Performance of IPO Firms in Emerging Countries (Note 1)

This paper provides the first empirical investigation seeking to find whether International Financial Reporting Standards (IFRS) mandate, changes in the quality of formal institutions, or, the concurrent effect of these two elements can explain the ongoing phenomenon of the aftermarket performance difference of Initial Public Offerings (IPO) firms. We perceive little awareness of the concurrent effect of IFRS mandate and the quality of formal institutions in emerging countries, although these nations account for more than half of the IFRS mandating countries. We employ numerous Difference-in-Differences (DiD) models utilizing reliable IPO and formal institutional data for Saudi Arabia from 2005 to 2017. Our empirical results show that the absence of IFRS influence in the aftermarket performance of IPO firms led us to posit that the quality of formal institutions is the key player in influencing long-term performance of IPO firms in Saudi Arabia. We uncover evidence showing that an improvement in formal institutional quality increases the long-term performance of IPO firms. We find no evidence of a concurrent effect of changes in formal institutional quality and IFRS mandate on the aftermarket performance of IPO firms. Our results show that what does really matter in relation to the aftermarket performance of IPO firms in Saudi Arabia, are the enhancements in the level of formal institutional quality. Our results provide some important implications for IFRS-IPO research.


Introduction
There is an ongoing debate amongst IFRS researchers emphasizing that country-level institutional environments largely influence the accounting systems' quality beyond any existing accounting standards (Daske et al. 2008;Christensen et al. 2013;Ball 2016). This perspective has allowed a concurrent effect concept to emerge in the IFRS literature. It entails that when countries intend to introduce mandatory IFRS reporting, at the same time, they may deliberately embark on improving the quality of their formal institutional environment such as the legal system in order to support the implementation of IFRS standards (Daske et al. 2008;Persakis & Iatridis 2017). Not accounting for such a concurrent effect encourages some IFRS scholars to question the results of IFRS studies that have examined the influence of IFRS mandate on capital markets, based on a possible identification problem (Brüggemann et al. 2013;Christensen et al. 2013). The source of this misidentification is that this concurrent effect makes it problematic to attribute the perceived capital market benefits to: IFRS mandate only; changes in the overall formal institutional environment in an economy; or the introduction of both (Brüggemann et al. 2013;Persakis & Iatridis 2017).
This paper answers a call made by Daske et al. (2008) and Christensen et al. (2013). The former supports the need for more empirical research into the concurrent-effect problem by stating: -Investigating this conjecture and the role of countries' enforcement regimes, which still differ considerably across IFRS countries, is an interesting avenue for future research‖. Moreover, the latter emphasizes the importance for more research to assess whether the effects of the economic benefits of IFRS mandate may extend to other capital markets; for example, for IPO firms in emerging in Saudi Arabia. This made us conclude that IFRS mandating does not offer long-lasting effects in the IPO market. In contrast, IFRS sustains only a short-lived influence on the problem of asymmetric information in the IPO market. The absence of IFRS influence in the aftermarket performance of IPO firms led us to posit that the quality of formal institutions is the key player in influencing long-term performance of IPO firms in Saudi Arabia. We uncover evidence showing that an improvement in formal institutional quality by one point, increases the long-term performance of IPO firms by up to 84%. We find no evidence of a concurrent effect of changes in formal institutional quality and IFRS mandate on the aftermarket performance of IPO firms. Stated differently, our result infers that IFRS succeeds in reducing information asymmetry problems in the primary market by offering investors and analysts additional and quality information related to IPO firms. In the secondary market, however, IFRS fails to produce any benefits to users of financial reports for IPO firms post-listing. Consequently, we assert that the superior market information populating the secondary market significantly reduces the ability of IFRS to provide benefits to users of financial reports in IPO firms even in Saudi Arabia. This weakened role could be related to the informational nature of the secondary market, where relevant and reliable information about listed firms is readily available. This abundance of information can perhaps help IPO parties capture the fair market value of IPO stocks post-listing, which probably reflects the aftermarket price performance. A battery of sensitivity tests is integrated into the process of generating our findings, ensuring the trustworthiness of the attained conclusions.
Research in the IFRS and IPO fields may benefit from our results of the concurrent effect notion. This relates to whether the possible economic effect on the aftermarket performance of IPO firms is exclusively due to either the IFRS mandate, changes in the quality of formal institutions, or, to the concurrent effect of these two elements. Saudi Arabia's acceptance to the application of IFRS is dissimilarly driven by the European harmonization initiatives that took place concurrently with the introduction of mandatory IFRS reporting in 2005 (Daske et al. 2008;Christensen et al. 2013;Persakis & Iatridis 2017). In fact, Saudi Arabia, similar to many emerging market economies, undertook prominent reforms to its formal institutions when IFRS was officially mandated in 2008 (Note 8). To the best of our knowledge, no existing empirical work has tried yet to formally address the concurrent effect concept of the IFRS mandate and changes in the quality of formal institutions in emerging countries. IFRS-IPO researchers may revise their expectations about the implications of IFRS as we find that IFRS mandating has only a short-lived effect and no long-lasting impact on information asymmetry in the IPO market. Alternatively, what does really matter in relation to the aftermarket performance of IPO firms in emerging countries such as Saudi Arabia, are the improvements in the level of formal institutional quality. This paper is organized into six sections. Section 2 provides a brief literature review while Section 3 provides the research question and hypotheses development. Section 4 outlines the employed data and methodology. Section 5 presents the empirical results and discussion and lastly, Section 6 draws the conclusion of our work.

Brief Literature Review
IFRS literature has raised a controversial topic regarding possible existence of identification problem in previous studies that examined the influence of IFRS mandate on capital market outcomes (Christensen et al. 2013;Persakis & Iatridis 2017). They claim that when states intend to introduce the application of IFRS, they are likely to initiate other changes to the financial reporting system, and it is this -concurrent-effect‖ that is probably attributable to the observed capital market effects. These changes are probably connected with the quality of that state's pre-existing institutional systems where these changes may explain the mixed outcomes of the economic benefits of IFRS mandate on the accounting quality of listed firms in other studies (Daske et al. 2008;Christensen et al. 2013;Ball 2016). It is, therefore, challenging whether to attribute the witnessed capital market effects to the single effect of IFRS mandate or to the initiated changes to a country's formal institutional environment or to a concurrent-effect of both elements (Brüggemann et al. 2013;Ball 2016;Persakis & Iatridis 2017).
Researchers recognize the institutional setting of a nation both formally, such as its legal framework (Note 9), and informally, such as the cultural framework to have an impact on the performance of IPO firms Zattoni et al. 2017;Chourou et al. 2018). This school of thought stresses that besides the features of IPO firms that are likely to create the problem of asymmetric information between IPO parties, the long-term performance of IPO firms in stock markets can be improved or extremely compromised by countries' predominant legal and cultural frameworks. Accordingly, dissimilarities in the quality of country-level formal and informal institutional quality can influence the perceived level of information asymmetry in the IPO market, consequently impacting on the observed level of aftermarket performance of IPO firms from country to country.
Current IFRS-IPO literature concentrates on the short-term performance of IPO firms and highly dedicated to developed countries include Otero and Enrí quez (2012) (Note 10) , Hong et al. (2014) (Note 11), and Lee et al. (2020) (Note 12). We see no awareness of the concurrent effects of IFRS mandate and institutional changes on the long-term performance of IPO firms in emerging countries. Dorsman et al. (2010) provide the only empirical examination regarding the effect of IFRS mandate on the long-term performance of IPO firms in a developed country. The authors examine 141 Dutch IPOs listed over the period 1990-2011 showing that these firms underperform the general market index. However, this level of underperformance falls slightly after mandating IFRS in 2005.
Since the mandatory adoption of IFRS in Saudi Arabia in 2008, only a few IPO studies have studied the long-term performance of IPO firms. For example, Alanazi and Al-Zoubi (2015) find that Saudi Arabian IPO firms underperform the Saudi Arabian all shares index, Tadawul, by 8.92%, in a one-year window. In contrast, Kamaludin and Zakaria (2018) find IPO firms listed in Saudi Arabia outperform Tadawul by 22% in a 12-month period. To date and to the best of our knowledge, there is no single empirical evidence that has yet examined the concurrent effects of mandatory IFRS and intertemporal changes in the quality of formal institutions on the aftermarket performance of IPO firms in emerging countries like Saudi Arabia. We aim to bridge this research gap by investigating the existence of this concurrent-effect notion and the individual implications of IFRS mandate and intertemporal changes in the quality of formal institutions on the long-term performance of IPO firms.

Research Question and Hypotheses Development
We aim to address the following research question; Is there a concurrent effect of IFRS mandate and changes in the quality of formal institutions on the long-term performance of IPO firms in Saudi Arabia? In order to answer the proposed research question, four hypotheses are developed after providing the following discussion.
Researchers find evidence concerning the existence of a poor long-term performance of IPO firms (Dorsman et al. 2010;Alanazi & Al-Zoubi 2015;Zaremba & Szyszka 2016;Zattoni et al. 2017). The long-term underperformance occurs when the long-term return of IPO firms, frequently measured in a one-year window, shows a smaller return than the return of a designated benchmark (Note 13) (Zattoni et al. 2017). Aggarwal and Rivoli (1990) devised the fads theory to explain the long-term underperformance of IPO firms as being due to a temporary overvaluation of the IPO firm at the offering date. The authors argue that investors react optimistically to the share price of IPO firms on the first trading days leading to a substantial increase in the share price. Subsequently, weeks or months after the listing day, investors start to lose their over-optimism about the actual value of the new stock leading to a downwardly adjusted share price of the IPO firm. Thus, Aggarwal and Rivoli (1990) show that IPO firms with high underpricing tend to underperform their comparable benchmark, commonly using the general market index in the long-term.

Hypothesis 1:
There is a negative relationship between IPO underpricing and the long-term performance of IPO firms in Saudi Arabia.
IFRS and IPO literature including Hong et al. (2014) claims that IFRS mandate can enhance the level of information quality of IPO firms. This occurs by improving the transparency of IPO prospectuses resulting in less information asymmetry amongst IPO parties, and in turn, lower IPO underpricing. We argue that this effect materializes since IFRS offers better information disclosure that deters managers' discretion (Note 14), and so increases IPO investors' and analysts' information certainty (Note 15) which concurrently affect the short and long-term performance of IPO firms. Dorsman et al. (2010) find that Dutch IPOs underperform the Dutch general market index, but this level of underperformance is moderately alleviated after IFRS standards had been mandated in 2005.
However, what is unknown is how IFRS standards would make a positive difference to the quality of information disclosure in the IPO market. We argue, for example, that IAS 39 Financial Instruments: Recognition and Measurement, is a very influential IFRS standard that dictates to managers in Saudi Arabia about how to use Fair Value Measurement (FVM), which is claimed to reduce information asymmetry amongst equity investors including IPO investors in both the primary and secondary markets. In this regard, Horton and Serafeim (2010) and Firth and Gounopoulos (2017) contend that when IPO investors and analysts employ the fair value method imposed by IFRS, they can subsequently increase their accuracy in appraising the fair share prices of listed companies, including IPO firms. Similarly, Fontes et al. (2018) find that when FVM is applied to banks' assets, it greatly helps in alleviating the asymmetric information problem between equity investors, observed by a reduction in the bid-ask spread (Note 16). The authors find that in post-IAS 39 mandate, information asymmetry is markedly reduced because investors have become more informed and less uncertain about the current asset value before conducting equity valuation. Duh et al. (2012) also assert that the FVM orchestrated by IFRS diminishes the volatility of earnings triggered by estimation error; therefore improving the transparency of accounting information in financial reports.
Additionally, in contrast to IFRS standards, Iqbal (2012) and Nurunnabi (2017) added that Saudi GAAP, similar to many emerging countries' GAAPs, grants companies' further liberty about the intangible assets' accounting treatment, either by capitalizing intangible assets or not. This accounting freedom leaves investors uncertain about the valuation of intangible assets when they need to determine the fair value of companies, particularly IPO companies. Meanwhile, IAS 38 forbids managers from capitalizing intangible assets. Hence, when IFRS eliminates incorporation costs of intangible assets, it limits managers' liberty to capitalize such costs for IPO companies . This, in turn, diminishes the uncertainty IPO investors in relation to the assessment of intangible assets in the IPO prospectuses.
Recall that in our first hypothesis, the fads theory expects a positive association between IPO underpricing and the long-term underperformance of IPO firms. This expectation rests on the rationale that IPOs experience great discounting, possibly because their share price is enthusiastically overvalued by investors. This overvaluation is also possibly influenced by managers' discretion to self-select accounting methods, which in turn influence investors' valuation sentiment. Subsequently, such IPOs will experience poor aftermarket performance. We argue that if IFRS standards can truly moderate poor accounting practices and lead to lower information uncertainty about the value of IPO firms, not only lower IPO underpricing (Note 17) but also better long-term performance in Saudi Arabia would be expected.

Hypothesis 2:
There is a positive relationship between IFRS mandate and the long-term performance of IPO firms in Saudi Arabia.
However, what is still mysterious is the influence of changes in the formal institutional quality on the issue of aftermarket performance of IPO firms in order to realize how such a concurrent effect could exert its influence on the aftermarket performance of IPO firms. This scenario is one where a change in the formal institutional quality is alone that has a positive effect on lowering IPO underpricing and improving the long-term performance of IPO firms (Jamaani & Ahmed 2021). This notion is built on the observations of the IPO underpricing and long-term performance literature, which argues that these two stock market phenomena can be affected by the existent of quality formal institutional environment (Zattoni et al. 2017;Brogi et al. 2020). This viewpoint suggests that asymmetry in the quality of formal institutions can influence the observed level of information asymmetry in the IPO market, therefore affecting the perceived level of IPO underpricing and long-term performance in that country. The argument is that a country with a weak formal institutional environment is anticipated to maintain an information environment characterized by a weak legal system, allowing information asymmetry to increase unchecked amid market participants (Kaufmann et al. 2017). Consequently, in such a country with a poor formal institutional environment, investment uncertainty is likely to increase. This results in a higher tendency for underpricing, affecting the long-term aftermarket performance of IPO firms in order to compensate (Zattoni et al. 2017). The authors find a positive association between the level of quality of formal institutions in a country and long-term performance of IPO firms.

Hypothesis 3:
There is a positive relationship between changes in formal institutional quality and the long-term performance of IPO firms in Saudi Arabia.
We argue that aftermarket performance of IPO firms could be concurrently influenced by the level of formal institutional quality and the quality of accounting standards in a country, as proxied by IFRS mandate. This opinion is based on the argument put forward by the IFRS literature contending that accounting system does not exist in a vacuum (Ahmed et al. 2013;Christensen et al. 2013). This school of thought argues that the accounting system established in a country is ‗a product of its environment' indicating a possible concurrent effect of the two elements (Houqe et al. 2012a;Persakis & Iatridis 2017). IFRS scholars state that a concurrent effect between country-level formal institutional environments and IFRS mandate can influence the accounting quality of financial reports in a country (Daske et al. 2008;Persakis & Iatridis 2017). Therefore, it could be this concurrent effect that explains the observed capital market benefits that previous studies mistakenly reported about the sole benefits of IFRS mandate to market users (Christensen et al. 2013). We argue that it could also be inferred that for IFRS to carry out what it promises, it requires a strong formal institutional quality environment to function properly. For example, a country with poor quality of formal institutions could not make it possible for the construction of high-quality accounting numbers, regardless of the implementation of quality accounting standards such as IFRS (Daske et al. 2008;Ball 2016). IFRS scholars emphasize that this concurrent effect notion infers that countries could deliberately work on improving their formal institutional system, simultaneously or concurrently with the introduction of IFRS mandate. Doing so will allow IFRS to reflect its claimed benefits on capital markets (Daske et al. 2008;Houqe et al. 2012b;Ball 2016;Persakis & Iatridis 2017).
Economic Forum (2017). These reports show that Saudi Arabia, for instance, managed to improve the quality of its formal institutional system proxy by enhancing the overall government transparency index by 21% from 2005 to 2017 where IFRS was mandated in 2008. Was such an improvement a coincidence or actually an intended reform to support the introduction of IFRS standards in Saudi Arabia's accounting system? Abdull Razak and Alqurashi (2019) argue that Saudi Arabia undertakes these formal institutional reforming efforts to enhance the overall investment environment including the enhancement of the quality of the reporting and accounting systems of listed companies. Adopting and implementing IFRS is a fundamental aspect of these reforming initiatives (Note 18). Such an improvement in the formal institutional quality of Saudi Arabia perhaps supports the predictable benefits from IFRS; alternatively, the influence of IFRS simply has no role to play in the stock market of Saudi Arabia where the IPO market is an integral part of it. Therefore, building on Hypothesis 2 and Hypothesis 3, we develop our final hypothesis. Since we expect a positive relationship between the single effects of IFRS mandate and changes in formal institutional quality on the long-term performance of IPO firms, the concurrent effect of those two elements might also wield a positive effect on the aftermarket performance of IPO firms in Saudi Arabia.

Hypothesis 4:
The concurrent effect between IFRS mandate and changes in quality of formal institutions have a positive relationship with the long-term performance of IPO firms in Saudi Arabia.

Why Saudi Arabia
Saudi Arabia as an emerging market economy shares similar formal and informal institutional settings with many emerging economies. For example, Figure   Saudi Arabia also has a consistent similarity with several other emerging countries in terms of informal institutional quality, for example, in the cultural dimension value of power distance (Note 22), as indicated in Figure 2. Hofstede (2011) shows that Saudi Arabia's culture has a score of 95 out of 100 regarding the dimension of power distance, while the emerging economies (Note 23) of Russia, Mexico, Indonesia, India, China, and Brazil also have high and positive scores of 93,81, 78, 77, 80, and 69, respectively.  (2011) Secondly, Saudi Arabia has a comparable but lengthier IFRS adoption experience compared to other emerging economies (IFRS Foundation 2017). For example, IFRS standards have been mandated in Saudi Arabia since 2008 meaning that the Kingdom has almost 10 (Note 24) years of IFRS history. On the contrary, in emerging economies the average length of IFRS history is around 7 years (Note 25). Prior IFRS literature has concerns about the generalizability of outcomes derived from IFRS research when a country has only a comparatively brief IFRS experience (Ball 2016; Houqe & Monem 2016). Thirdly, Saudi Arabia is a less advanced economy and very different from the European countries, marked by the Kingdom having a problem of information asymmetry in its stock market. There are also numerous key differences between its local GAAP and IFRS standards (Iqbal 2012;Nurunnabi 2017). These two elements make Saudi Arabia ideal for investigation to perceive the effect of IFRS mandate and changes in formal institutional quality in improving the information symmetry in an emerging economy where large differences exist between its local GAAP and IFRS. This probably offers a new opportunity for IFRS research. Houqe et al. (2012a) and Hong et al. (2014) contended that the mixed results reported in the literature with reference to the impact of IFRS mandate on capital market outcomes in developed countries are perhaps due to the inclusion of countries having small differences (Note 26) between IFRS and their local accounting standards. The Saudi Arabian equity market not only suffers from a high level of information asymmetry but also from large differences between IFRS standards and its accounting rules. For example,  showed that financial market development and information efficiency is weak in the Gulf countries' equity markets including Saudi Arabia, caused by the existence of weak market transparency. Iqbal (2012) and IFRS Organisation (2016) recognized 21 key differences between IFRS standards and the Saudi Arabian GAAP. On this issue, Nurunnabi (2017) identifies 15 (Note 27) IFRS standards that can perhaps cause a serious impact on the quality of accounting information and disclosure asymmetry in the Saudi IPO market. Finally, since IFRS standards were mandated in 2008 for insurance and banking firms, other listed companies cannot voluntarily adopt IFRS (Note 28). This points towards the high possibility that the Saudi Arabian IPO market is free from the self-selection bias that negatively impacted on the outcomes reported by prior studies. In this regard, Daske et al. (2008), and Christensen et al. (2013) argue that voluntary IFRS adopters who agree to take IFRS after assessing its benefits and shortcomings, in contrast to mandatory adopters who adopt a "one size fits all" approach, suffer from a serious self-selection bias; this greatly compromises the trustworthiness of their conclusions. Therefore, considering the above-mentioned characteristics of Saudi Arabia, the Kingdom provides an ideal case for making the results from the concurrent effect of IFRS mandate and intertemporal changes in formal institutional quality on the aftermarket performance of IPO companies, possibly generalizable to other emerging countries.

Sample Selection
Our total sample includes 100 IPO corporations listed between January 2005 and December 2017 in Saudi Arabia.
Our IPO data sourced from DataStream and Eikon databases. Transparency data is sourced from the World Economic Forum (2017) and it includes three proxies including ethical behavior of firms, strength of auditing and reporting standards, and transparency of government policymaking. We follow accounting disclosure and IPO literature including Shi et al. (2013) and Hong et al. (2014) to have various controlling firm-and market-specific factors.
Definitions of all variables are included in Table 1.  (2017) does not provide formal institutional data for Saudi Arabia before 2005. Our four hypotheses are tested using several DiD (Note 31) models following Hong et al. (2014). By applying the DiD method, we can test the effect of treatment, IFRS mandate or changes in formal institutional quality or both effects, on the dependent variable (the aftermarket performance of IPO firms) and then compare the mean change in the dependent variable for the treatment group with the mean change for the control group. We employ unbalanced (Note 32) cross-sectional regression, with the model having the following definition: (1) In Equation (1), the dependent variable is the long-term performance of listed IPO firms, and it refers to the buy and hold excess returns , of stock relative to benchmark . In Equation (2), Zattoni et al. (2017) have been followed to calculate , as follows; Where , is the market-adjusted buy-and-hold return of firm in event month , is the monthly raw return on firm in event month , and is the benchmark specific monthly raw returns of the market index designated as the Tadawul All Share Index. Following Alanazi and Al-Zoubi (2015), the calculation of , begins with the closing price of an IPO firm on its first listing date and extends to its closing price 12 (Note 33) months post-listing, where a month equals 21 business days. This timeframe is likely to allow market participants in Saudi Arabia's stock market to observe and reflect on the IPO firms' accounting and financial announcements and performance. When , provides positive and significant values, it then means that IPO firms outperform their benchmark, Tadawul, in the 12 months window, while a negative and significant value indicates the opposite. The presence of an insignificant value of , indicates no performance difference between IPO firms and Tadawul. To address Hypothesis 1, the coefficient 6 in Equation (1)  (1), the 3 variable denotes the interaction term, Post*Treatment, capturing the change in , for only bank and insurance firms after the IFRS mandate period from 2009 to 2017. If the IFRS mandate keeps its promise and improves the accounting quality of the treatment group, then 3 should be statistically positive, hence, addressing Hypothesis 2. Similarly, the coefficient 4 addresses Hypothesis 3 where the positive relationship between intertemporal changes in the quality of formal institutions is examined. Lastly, the coefficient, 5 , addresses Hypothesis 4 where the purpose is to investigate the likelihood of a concurrent effect between IFRS mandate and changes in the quality of formal institutions having a positive relationship with the long-term performance of IPO firms in Saudi Arabia.

Regression Results
Results reported across all models in Table 2 provide a weak supportive outcome for Hypothesis 1. This is because the variable UP shows a value of ranging from -0.02 to -0.03, and they are statistically significant at only 10%. These results show that when IPO firms experience a high level of underpricing perhaps caused by IPOs' share prices being optimistically overvalued by investors and analysts on the first trading day of the IPO firm, these IPO underperform in the long-term by up to 3%. Such an overvaluation mistake gradually observed in the secondary market within the first 12 months of post-listing. Hence, once the initial enthusiasm about the performance of IPO firms fades away, investors are likely to review their valuation of IPO firms leading to poorer long-term performance compared to Tadawul. The result for Hypothesis 1 is consistent with Alanazi and Al-Zoubi (2015) who discover a negative association between the initial over-optimism of IPO investors measured by the level of IPO underpricing and long-term performance of IPO firms. T-statistics in brackets are adjusted for heteroscedasticity at *** p<0.01, ** p<0.05, * p<0.1. Table 2 provide no supportive outcomes for Hypothesis 2. The results of the statistically insignificant and positive coefficient of IFRS mandate indicating that it does not provide long-term economic benefits to IPO firms from 2009 to 2017. The results of EBF, SARS, TPG variables test the expectation of Hypothesis 3 that anticipates a positive relationship between changes in formal institutional quality and long-term performance of IPO firms in Saudi Arabia. The first proxy, EBF, which captures changes in the ethical behavior of firms, provides positive and statistically significant outcome. This outcome suggests that enhancements in the overall quality of the private sector's transparency measured by the level of EBF in Saudi Arabia from 2005 to 2017 largely improve the long-term performance of listed IPO firms by 51%. The remaining two proxies of tranpreancy including SARS and TPG provide consistent outcomes. The outcome of Hypothesis 4 that examines if the concurrent effect between IFRS mandate and changes in the formal institutional quality is positively linked to the long-term performance of IPO firms in Saudi Arabia is reported by the results of β5. The interaction term, IFRS*EBF, reads positively, but its insignificant outcome indicates the absence of a concurrent effect between changes in ethical behavior and long-term performance of Saudi Arabian IPO firms and IFRS mandate. The remaining two concurrent effect proxies including IFRS*SARS and IFRS*TPG provide consistent outcomes. Hence, Hypothesis 4 is not supported. Table 2 shows that firm-and market-specific controlling factors to the long-term performance of IPO firms are not all important. Overall, the majority of firm-and market-specific factors deliver comparable outcomes to prior literature, including Dorsman et al. (2010), Alanazi and Al-Zoubi (2015), and Zattoni et al. (2017. The adjusted R-squared results amongst the 3 DiD models reported in Table 2 provide R-squared values reaching 21%. This means that the estimations performed here succeeded in explaining up to 21% of the variations in the long-term performance of IPO firms in the stock market of Saudi Arabia. This adjusted R-squared value is almost double what is found by comparable studies such as Dorsman et al. (2010) (Adjusted R-squared: 0.103; Table 6; Model 4) who report adjusted R-squared value of only 10.30% for 136 listed IPO firms in Denmark.

Discussion
The uncovered yet insignificant results for Hypothesis 2 are consistent with Dorsman et al. (2010) who found that IFRS does not deliver robust economic benefits to the long-term performance of IPO firms in Denmark. However, how can such an outcome be clearly interpreted? We argue that previous IFRS-IPO underpricing literature including Otero and Enrí quez (2012) and Hong et al. (2014) found significant evidence documenting an effective certification role of IFRS mandate. This effect decreases the ex-ante uncertainty of IPO investors that leads to reducing IPO underpricing for listed IPO firms. By combining the results attained by Otero and Enrí quez (2012) and Hong et al. (2014) related to the effect of the IFRS mandate on short-term IPO underpricing and our results related to the long-term performance of IPO firms, a logical interpretation of the results emerge. It becomes apparent that the IFRS mandate does not have a long-lasting effect; it has only a short-lived effect on the problem of asymmetric information in the IPO market in emerging countries such as Saudi Arabia. In other words, our interpretation points to IFRS alleviating the information asymmetry problem but only in the primary market. This is done by contributing positively to the level of disclosure for IPO prospectuses, where investors and analysts can receive additional and quality information related to IPO firms.
On the other hand, IFRS does not successfully generate any additional benefits to the users of financial reports for IPO firms post-listing in the secondary market in Saudi Arabia. This outcome could be attributed to the fact that in the secondary market, investors and analysts can obtain reliable information from different sources (Note 34). Such accessible collections of information can largely assist IPO parties in determining the fair market value of IPO shares, which reflects on the aftermarket price performance. This interpretation is in conjunction with a similar remark highlighted by previous studies showing a great asymmetric information gap between the primary and secondary markets (Shi et al. 2013;Hong et al. 2014;Brogi et al. 2020). The absence of IFRS exerting an effect on aftermarket performance of IPO firms could lead to the idea that the quality of formal institutions is the main player in the long-term performance of these Saudi firms. The results documented in Table 2 clearly support the prediction of Hypothesis 3, which supports the above contention. This evidence is comparable to Zattoni et al. (2017) who find a positive association between the level of corporate governance practices in a country and long-term performance of IPO firms.
The finding related to the absence of the significant concurrent effect of changes in formal institutional quality proxies and IFRS mandate on the aftermarket performance of IPO firms is comparable to but disagrees with Houqe et al. (2012b). This is because the authors uncover significant evidence documenting a major concurrent effect between investor protection and IFRS mandate in improving earnings quality, which is measured by the reduction in discretionary accruals. The authors find a positive but insignificant relationship between either investor protection or IFRS mandate in enhancing earnings quality. The presence of possible omitted variable bias and the short time period for post-IFRS coverage in Houqe et al.'s (2012b) work might explain the differences between their distinguished work and ours regarding the concurrent effect results. In fact, the authors acknowledge the existence of a possible omitted variable bias with respect to the measurement of the investor protection variable. In contrast to our reported results in Table 2, Houqe et al. (2012b) assume that countries do not change their formal institutional quality measured by the level of investor protection over the course of time. Hence, they assume a time-invariant nature of the variable investor protection. Hearn (2014) contends that the use of time-invariant formal institutional proxies by previous studies biases the results about the relationship between changes in transparency and performance of IPO firms. Moreover, the data of Houqe et al. (2012b) covers 47 developed and emerging countries between 2000 and 2007 when IFRS became mandatory in 2005; hence, this offers only two years of IFRS experience. The majority of emerging countries covered by Houqe et al. (2012b), for example, China, Argentina, Brazil, Mexico, Indonesia, India, Malaysia, and Saudi Arabia, had not adopted IFRS mandatorily by 2007 (Note 35). Stated differently, the concurrent effect results generated using an emerging sample, including Saudi Arabia by Houqe et al. (2012b) provide a valuable foundational work. However, they are difficult to generalize to emerging countries. In contrast, the data employed by our study ranges from 2005 to 2017 and offers nine years of IFRS experience.
Our results can, therefore, offer long-term monitoring of the IFRS effect either individually or concurrently with time-variant changes in formal institutional quality. Hence, the results related to Hypothesis 4 are likely to provide better results. It reveals the absence of a concurrent effect between intertemporal changes in formal institutional quality and IFRS mandate on the long-term performance of IPO firms in including Saudi Arabia. This absent effect is likely to be attributed to the absence of a direct effect of IFRS mandate on the aftermarket performance of IPO firms which is confirmed by the rejection of Hypothesis 2 and the finding of Dorsman et al. (2010) as well. Hence, we conclude that IFRS does not exert a long-term effect on IPO firms. Instead, intertemporal improvements in formal institutional quality only matter in the long run concerning the performance of IPO firms after they have been listed.

Robustness Tests
In order to improve the robustness of the findings (Note 36), a range of sensitivity tests is employed to make sure that previous conclusions are not an artefact of not controlling for several testing specifications. This includes adjusting for the synthetic clustering in the DiD model, outliers, potential endogeneity in the OLS model, the unbalanced distribution of IPO data and small sample size, and omission of some economic and stock market factors linked to the IPO market. An alternative dependent variable is also used to check the sensitivity of the results and a test of the positive effect of IFRS mandate on IPO underpricing is also conducted. Table 3 presents the results of 9 DiD models integrating the three formal institutional proxies. Encouragingly, they render consistent results with previous outcomes even after correcting for two clusters, including IFRS versus non-IFRS, 12-year clusters, and 15 industry clusters. Models 1 to 3 in Table 4 report the outcomes after excluding 2 observations that caused an outlier threat. Reliably, we attain identical results that ensure strong confidence in our previous findings. Accounting disclosure and IPO researchers caution for the presence of endogeneity in aftermarket performance models that are probably to bias the results of OLS estimation when it is ignored (Shi et al. 2013;Zattoni et al. 2017;Jamaani & Ahmed 2020). This problem may be attributed to two things: firstly, the endogenous decision of IPO firms to choose prestigious underwriters; and secondly, the IPO firms' choice to self-select an exact time where they perceive an improvement of the overall formal institutional quality in a given country. Models 4 to 6 in Table 4 present the outcomes using 2SLS estimation after correcting for endogeneity in the variables URD, EBF, SARS, and TGP. The results reveal that IPO firms neither endogenously select reputable underwriters when they go public nor relate their choice to list their companies when the quality of formal institutions changes in Saudi Arabia. This surely preserves the trustworthiness of and assurance in the reported outcomes using OLS estimation in previous results. We are conscious of a probable critique against the trustworthiness of our outcomes caused by the employment of a small sample size and being unevenly distributed over 15 industries and 12 years. To eradicate such a worry, we follow Efron and Tibshirani (1986) to re-check our findings after employing bootstrapping estimation to our models. Models 6 to 9 in Table 4 show our results after incorporating bootstrapping estimation. Confidently, the results lead to quantitively similar outcomes to our prior results. We deploy a further robustness check to confirm that our prior findings are not an artefact of a probable omitted variable bias possibly caused by not accounting for some economic and stock market variables that may impact on our earlier outcomes. This contains capturing the introduction of a price cap for newly listed IPOs in 2013 (Note 37), GCC stock market crisis in 2006 (Note 38), and the GFC in 2008. Across the 9 models in Table 5, consistently supportive results are attained similar to what is reported previously. Additionally, we use a wealth relative (WR (Note 39)) ratio as an alternative measure for the dependent variable. The IPO literature commonly uses WR as a supplement to the BHAR measure in order to test the sensitivity of results (Alanazi & Al-Zoubi 2015). Collectively, the employed 3 models in Table 6 provide consistently supportive outcomes to the ones previously reported for our four hypotheses in Table 2. Finally, recall that we built our explanation of the absence of the long-run influence of IFRS mandate based on the results attained by IFRS-IPO research including Otero and Enrí quez (2012) and Hong et al. (2014) related to the observed effect of the IFRS mandate on the short-term IPO underpricing that observed only in developed countries. Hence, we argued that due to the wide difference in information asymmetry between the primary and secondary markets, IFRS only solves the problem of information asymmetry in the primary market while it offers no benefits to the long-term performance of IPO firms. So, we test if this construct really holds in Saudi Arabia by examining the relationship between IFRS mandate and IPO underpricing. Table 7 reports supporting results to previous IFRS-IPO research by regressing the variable IFRS on IPO underpricing, the dependent variable, showing that IFRS reduces IPO underpricing in Saudi Arabia by 258%. Again, our results confirm that IFRS has only a short-lived effect; it has no long-lived influence on information asymmetry in the IPO market. The changes in the quality of formal institutions is the alternative player in influencing the long-term performance of IPO firms in Saudi Arabia.  This table provides the results of the DiD models for 100 IPO firms from 2005 to 2017. T-statistics in brackets are adjusted for heteroscedasticity at *** p<0.01, ** p<0.05, * p<0.1.

Conclusion
Although IFRS literature calls for the importance to capture the concurrent effect between IFRS mandate and enhancements in the quality of formal institutions on capital market outcomes, such an empirical consideration is overlooked in emerging countries such as Saudi Arabia. The lack of an empirical testing of this issue caused an ongoing misperception about whether to attribute a positive market outcome to the intertemporal improvements in the quality of formal institutions, or to IFRS mandate or to a concurrent effect of the two. While we study the concurrent effect of mandating IFRS standards and changes in formal institutional quality, the individual effects of IFRS mandate and time-variant changes in formal institutional quality on the aftermarket performance of IPO firms are also examined.
Our results confirmed that the absence of IFRS impact in the aftermarket performance of IPO companies helped us to confirm that time-variant changes in transparency in Saudi Arabia are the substitute factor that affects the long-term performance of IPO firms. An enhancement in the level of ethical behaviour of firms, the strengthening of auditing and reporting standards, and an increase in the transparency of government policy-making by one-unit improve the long-term performance of IPO firms by up to 84%. However, we found a concurrent effect of IFRS mandate and variations in formal institutional quality on the aftermarket performance of IPO firms is economically absent. This outcome is not completely unforeseen. This is because the results show an absence of a direct influence of IFRS mandate on the aftermarket performance of IPO firms. As a result, we conclude that IFRS does not offer a long-lasting outcome for IPO firms. In its place, what does really matter in relation to the aftermarket performance of IPO firms in Saudi Arabia, are the intertemporal improvements in the level of formal institutional quality.
Our results provide implications for researchers. This is because our results provide a better understanding of the concurrent effect problem that is under-addressed in the information disclosure and IPO literature. Thus, scholars in the field of IFRS and IPO could benefit from our outcomes of the concurrent effect conception. This relates to whether the probable effect on the long-term performance of IPO companies is solely due to either the IFRS standards, variations in the quality of formal institutions, or, to the concurrent influence of these two components. Saudi Arabia's mandatory embracement to the application of IFRS is differently driven by the European harmonization efforts that took place simultaneously with the mandatory embracement to the application of IFRS reporting in 2005. In reality, Saudi Arabia, comparable to several emerging market economies, reforms its formal institutions when IFRS was formally introduced in 2008. To our knowledge, there is no existing research has attempted yet to properly capture the concurrent effect notion of the IFRS mandate and variations in the quality of formal institutions in emerging countries. Researchers in the field of IFRS and IPO may consider revising their outlooks about the implications of IFRS as we discover that IFRS has only a short-lived effect and no long-lasting influence on information asymmetry in the IPO market.