Abstract
Previous research showed that in the early years after adoption, the change to International Financial Reporting Standards (IFRS) impacted accounting quality. The purpose of this study is to analyze whether those effects have changed over time in companies within countries that have different legal regimes, enforcement, and degrees of external investor protection. We measure accounting quality using discretionary accruals, real activities manipulation, and the stock price value relevance of earnings per share and book value per share. The findings show that the early effects of IFRS adoption continue with the passage of time in companies listed in countries with common law systems, such as the United Kingdom (UK) and Australia, which provide powerful outside investor protection in capital markets. Yet, the early effects of IFRS adoption do not continue after the passage of time in companies listed in Asian countries with statutory law systems, such as Korea and China, which have low levels of outside investor protection. Moreover, it is difficult to obtain evidence that value relevance has improved after the accounting measurement of corporate value shifted to IFRS. The results show that there are differences in the sustained effects on accounting quality, even after the application of IFRS due to the different social, economic, and cultural characteristics of countries.
Highlights
The efficient use of limited resources or capital plays an important role in the sustainability of companies and in healthy economic development
We do not present a table in the manuscript, Pearson correlation analysis shows that no difference was found in the correlations between discretionary accruals (DA), RM1, and RM2, which are used as variables of accounting quality, and market price, earnings per share (EPS), and book value per share (BVPS), which are used to measure value relevance before the adoption of International Financial Reporting Standards (IFRS), in the first and second years after adoption, and in the third, fourth, and fifth years after adoption
This study demonstrates that the sustained effects of IFRS adoption on earnings management and value relevance depend on differences in the legal systems and institutions of each country
Summary
The efficient use of limited resources or capital plays an important role in the sustainability of companies and in healthy economic development. For efficient capital allocation, investors need high-quality accounting information in order to enable them to make comparisons across borders that are relevant and have a faithful representation [1,2,3,4]. As of November 2018, 144 jurisdictions around the world have adopted IFRS as their financial reporting standards. According to the annual report of the International Institute for Management Development (IMD), South Korea’s ranking for accounting transparency has consistently declined since the adoption of IFRS. In 2015, Samsung BioLogics excluded Bioepis, which was a subsidiary company in 2014, from its consolidated financial statements, and changed its accounting to the equity method; as a result, its net loss of 99.7 billion won during the 2014 fiscal period turned into a profit of 1.9049 trillion won in 2015
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