Goodbye IFRS: Determinants and Consequences of Dropping International Financial Reporting Standards

Abstract

In this study we analyse the determinants and consequences of dropping IFRS. Most Swiss firms listed on the SIX Swiss Exchange and most Chinese firms listed in Hong Kong (H Share companies) use IFRS, but a significant number of these firms have recently opted to drop IFRS. We first analyse the determinants for dropping IFRS and find that less capital market-oriented firms are more likely to drop IFRS. Second, we analyse the effects of dropping IFRS on commonly used accounting quality measures and find some evidence for reduced quality after dropping IFRS. As Swiss GAAP differs more from IFRS than Chinese GAAP, we expect that accounting quality reduces more in Switzerland than in China, but we do not find evidence for this. Third, we analyse the capital market effects of dropping IFRS and find evidence that information asymmetry decreases in China, but there is no significant effect in Switzerland. Additionally, we find that the difference in information asymmetry between Swiss and Chinese firms increases after dropping IFRS. We do not find negative market reactions to dropping IFRS, suggesting that the decision to drop IFRS does not harm investors.