Voluntary application of IFRS by unlisted companies: evidence from the Italian context

Abstract

This paper tackles the issue of which firm-level factors are associated with the application of IFRS by unlisted companies and focuses on the Italian setting, where they can choose between preparing unconsolidated financial statements under either national GAAP or IFRS. Prior literature has focused on specific national settings providing mixed evidence on the characteristics that explain unlisted companies’ voluntary adoption. Analysing a sample of 2915 companies, this paper extends previous research by providing evidence confirming the significance of firm size, foreign ownership, and capital intensity. Results also indicate that in Italy leveraged companies are more likely to apply IFRS in their financial statements, differently from the UK setting and similar to the German one. Additionally, this study explores the counterintuitive issue of companies adopting IFRS when they are in a situation of distress. Findings suggest that in case of independent companies voluntary IFRS adoption can be explained by financial and economic distress. This paper provides implications to regulators interested in the current debate on financial reporting for unlisted companies. The findings can also be of interest for a broad array of practitioners, and especially for managers of firms currently evaluating the opportunity to switch to IFRS.