Voluntary Adoption of IFRS: What Motivates Japanese Firms to Voluntarily Adopt IFRS?

Abstract

Increasing numbers of Japanese firms have adopted or plan to adopt IFRS since 2013, when almost all listed firms were permitted to adopt IFRS in Japan. Although there are other options such as Japanese-GAAP, US-GAAP, or Japanese Modified International Standards (JMIS), these firms have chosen ‘pure IFRS’. This study investigates the factors that motivate firms to adopt IFRS in a voluntary setting by matching firms’ choice to (not) adopt IFRS with survey data from the IFRS pre-decision period that provides a holistic picture of Japanese CFOs’ perceptions of the benefits and costs of IFRS. We find that while IFRS voluntary adopters have expected that transitioning to IFRS will involve significant costs just as much as non-adopters do, they are motivated to better communicate with global capital market participants through using IFRS. Further analyses show that firms that perceive favorable consequences from using IFRS are more likely to adopt IFRS voluntarily despite serious concerns about the likely costs involved during the transition process.