Abstract
This paper addresses the question whether adoption of International Financial Reporting Standards (IFRS) is associated with low earnings management in unlisted companies in three European countries. Therefore, this paper investigates whether companies that have adopted IFRS voluntarily engage significantly less in earnings management compared to companies that have not adopted IFRS. Moreover, this study examines firm-specific incentives and their role in the adoption decision within different institutional settings. The distribution of earnings is analyzed to discover whether companies have managed their earnings. Logistic regression analysis is used to examine the firm-specific incentives. Empirical findings reveal that in sample of unlisted firms using IFRS the distribution of earnings is smoother. Thus, the results provide supporting evidence for the adoption of IFRS. Moreover, results of this study provide relatively good empirical support for statements that large unlisted firms with foreign owners and that are profitable are more likely to adopt IFRS voluntarily. However, the firm-specific incentives play different role in the adoption decision process in weak institutional settings compared to strong institutional settings.
Highlights
This study examines effects of adoption of International Financial Reporting Standards on accounting quality in unlisted entities for a relative broad set of firms from three European countries that have adopted IFRS relative to a benchmark group of firms that did not adopt IFRS
The results reveal that FOWN is positively associated with IFRS adoption (p
The results suggest that GROWTH is positively associated with IFRS adoption (p
Summary
This study examines effects of adoption of International Financial Reporting Standards ( on IFRS) on accounting quality in unlisted entities for a relative broad set of firms from three European countries that have adopted IFRS relative to a benchmark group of firms that did not adopt IFRS. Prior research using publicly listed firms suggests that the use of IFRS limits managerial discretion and requires more disclosure and greater transparency (e.g., Leuz et al, 2003; Francis et al, 2008, Bova & Pereira, 2012). Prior research suggests that unlisted firms have incentives to improve the quality of their financial reports in order to reduce information asymmetry, and voluntary adoption of IFRS is one tool to achieve that goal. Analysts, investors, and other financial information users may find it useful to understand the effects of IFRS adoption on accounting quality in unlisted entities
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