Abstract
AbstractThis study uses an ideal setting to capture the influence of the national institutional environment on outcomes (i.e., earnings quality) of IFRS convergence using a within‐country approach. We show that earnings quality in terms of discretionary accruals and persistence has increased, while conservatism has decreased after IFRS convergence. The results are more pronounced in companies with a strong institutional environment. Our results are robust after considering incentives and other confounding factors. Our findings show differences in earnings quality in firms within a country adopting the same standards, let alone in firms worldwide. This indicates the context embeddedness of accounting standards.
Highlights
This study contributes to a growing body of new institutional accounting research (Wysocki, 2011) and International Financial Reporting Standards (IFRS) convergence literature in the Asia-Pacific region by exploring an ideal setting to investigate how the weaker versus stronger national institutional environment influences economic consequences of IFRS convergence.J
Heterogeneities in the institutional environment may lead to inconsistencies between de jure convergence, which refers to formal convergence in accounting standards and regulations (Canibano and Mora, 2000), and 1de facto convergence, which refers to material convergence in accounting practices and applications (Canibano and Mora, 2000). 2This challenges the ultimate goal of IASB, which is de facto convergence (Doupnik and Perera, 2012)
Consistent with Barth et al (2008) and Ahmed et al (2013), we focus on the coefficient of interaction between IFRS convergence and the institutional environment, which explains the incremental effect of the weaker institutional environment on IFRS convergence and earnings quality relative to the stronger institutional environment
Summary
This study contributes to a growing body of new institutional accounting research (Wysocki, 2011) and International Financial Reporting Standards (IFRS) convergence literature in the Asia-Pacific region by exploring an ideal setting (i.e., two different types of listed companies within mainland China) to investigate how the weaker versus stronger national institutional environment influences economic consequences (i.e., earnings quality) of IFRS convergence. Estimates based on a linear model may reach spurious conclusions Another limitation of the methodology of previous event studies on IFRS adoption is the ad hoc solutions to standard errors in the presence of withincluster correlation such as clustering on region, industry or year. Our study addresses several research questions related to the influence of the strength of the national institutional environment on IFRS convergence and earnings quality. The fourth section presents and discusses the results, and the fifth section concludes with a discussion of research implications
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