Moderating role of voluntary IFRS adoption on earnings management and credit score of private companies

Abstract

Earnings management practices may be implemented to unduly improve the company's credit score, and in voluntary settings, a company's choice of adopting IFRS can influence the company's credit profile. We conduct an empirical analysis on a representative sample (n = 10,389) of Italian private companies and find that earning management practices improve, whereas a voluntary IFRS adoption worsen a company's creditworthiness profile. We also find that IFRS adoption cancels out the former undue credit profile benefits, further penalising the credit score. Future studies should replicate these analyses for other contexts and using alternative financial measures to improve the generalisability of these findings.