The Effect of Voluntary IFRS Adoption on MD&A Information

Abstract

ABSTRACT We analyze the textual management discussion and analysis (MD&A) information of Japanese firms that voluntarily adopted International Financial Reporting Standards (IFRS) and disclosed information in the Japanese language. We conduct a difference-in-differences analysis of firms that voluntarily adopted IFRS and those that continue to use Japanese generally accepted accounting principles. We find that the voluntary adoption of IFRS decreases the textual length but does not change the difficulty of MD&A information. The results indicate that IFRS adoption decreases the level of MD&A disclosure. However, the decrease in textual length is not observed after the 2018 MD&A regulation changes. This suggests that the negative effect of IFRS adoption is offset by the positive effect of the regulation change. This study is unlike previous research as it contributes to international accounting literature by analyzing financial reporting in a non-English language, viz. Japanese, which is, technically, a very difficult language. Data Availability: All financial data and some textual data used in this study are available from commercial providers (NEEDS–FinancialQUEST2.0, NEEDS–MT Executive (Yakuin), and eol), and the other textual data are available from a governmental public source (EDINET). JEL Classifications: M41; M48; G14.