Market Reaction to the Implementation of Inflation Accounting: An Event Study

Abstract

Purpose – In an inflationary environment, preparing financial reports on a historical cost basis limits their fair presentation and leads to information gaps in investors' decision-making processes. This situation makes inflation accounting important, as it enables financial reports to be presented in a manner closer to reality by removing the effects of inflation. Accordingly, the purpose of this study is to examine the effects of the inflation accounting practice, which was reintroduced in Türkiye in 2023, on the share prices of BIST 30 businesses traded on Borsa İstanbul (BIST).

Design/methodology/approach – Within the scope of the study, market reactions on the dates when 26 businesses operating continuously in the BIST 30 disclosed their inflation-adjusted financial reports during the period from January 2023 to June 2024 were measured using the event study method. To examine how market reactions to inflation accounting were shaped under different index structures, the BIST 100 and MSCI Turkey indices were included in the analysis as alternative market portfolios.

Results – In the market model based on the BIST 100 index, statistically significant negative abnormal returns were observed in the short-term following the event, whereas the market reaction remained more limited in the model based on the MSCI Turkey index. In addition, sectoral analyses indicate that the negative market reaction in the manufacturing sector was more pronounced than in other sectors.

Discussion – In conclusion, it was determined that the implementation of inflation accounting produced heterogeneous pricing effects on BIST at both the business and sector levels.