Abstract
We examine a potential informational cost of adopting the International Financial Reporting Standards (IFRS). Using a difference-in-differences approach, we find that mandatory IFRS adoption leads to a significant decrease in accrual reliability. We also find that this negative relation between IFRS adoption and accrual reliability is more pronounced for firms (a) holding more financial instruments and (b) domiciled in jurisdictions with weak institutional features. The above findings are robust to alternative sampling and an extended sample period. Further analysis shows that reduced accrual reliability reflects a trade-off with increased value relevance and that outside investors fail to understand the IFRS-induced reductions in accrual reliability.
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