Effect Of Mandatory IFRS Adoption Research Articles

Analyst coverage and real earnings management: Does IFRS adoption matter? UK evidence

This study examines the impact of analysts coverage on real earnings management (REM) decisions. The study further investigates the effect of mandatory IFRS adoption on the relationship between analyst coverage and REM. We constructed a sample of UK non-financial listed firms for the period 1997–2021. The results demonstrate that firms followed by a large number of financial analysts record higher levels of earnings management. This result supports the contention that high intensity of analyst coverage imposes extra pressure on firms' managers to meet analysts' earnings per share (EPS) expectations, motivating a higher level of earnings management. Contrary to expectations, the introduction of IFRS fails to strengthen the monitoring role of security analysts on firms' management: rather, managers utilize the inherent flexibility and available discretion in the principles-based IFRS to meet analysts’ benchmarks by means of REM activities. These results are robust after controlling endogeneity.

Accounting Standards and External Corporate Governance. The effect of mandatory IFRS adoption on Analyst Coverage.

Accounting Standards and External Corporate Governance. The effect of mandatory IFRS adoption on Analyst Coverage.

Accounting standards and external corporate governance: the effect of mandatory IFRS adoption on analyst coverage

Accounting standards and external corporate governance: the effect of mandatory IFRS adoption on analyst coverage

The effect of mandatory IFRS adoption on the value of cash: The case of Canada

AbstractThis paper presents evidence that Canada's 2011 adoption of IFRS improved Canadian firms' access to external financing. We use a matched sample of Canadian and US firms and find that the marginal value of cash decreased significantly in Canadian firms following mandatory IFRS adoption in Canada. The post‐IFRS decrease in the marginal value of cash is most evident for firms that have a larger number of similar firms in non‐Canadian IFRS regimes. This is consistent with IFRS creating a uniform set of accounting standards that lowers the information costs of cross‐border financing. We also find larger IFRS‐related decreases in the value of cash for firms with high growth potential and low availability of internal cash.

Financial Reporting and Trade Credit: Evidence from Mandatory IFRS Adoption*

ABSTRACTWe investigate the effect of mandatory IFRS adoption on trade credit. We document that firms in countries that adopt IFRS receive more trade credit from their suppliers, consistent with improved financial reporting quality and comparability playing a role in facilitating informal financing. This increase is larger for countries with a low level of societal trust, a poor pre‐IFRS‐adoption information environment, and stronger legal enforcement. These cross‐sectional results suggest that the conditions under which higher‐quality information is made publicly available affect suppliers' decisions to provide trade credit. This increase is also larger for firms with greater exposure to foreign markets, a finding that highlights the importance of more comparable international financial reporting standards in facilitating cross‐country trade credit. We also find that IFRS adoption has a stronger positive effect on trade credit for firms with greater liquidity needs. Finally, we find that firms in countries that adopt IFRS also extend more trade credit to their customers. Overall, our results support the notion that financial reporting can have a causal effect on trade credit.

Effect of Mandatory IFRS Adoption on Accounting-Based Prediction Models for CDS Spreads

In this study, we examine the effects of mandatory IFRS adoption on accounting-based prediction models of CDS spreads for a sample of 292 firms in 16 countries. In our examination, we estimate the models for both financial and nonfinancial firms before and after mandatory IFRS adoption. We find that mean and median absolute percentage prediction errors are larger for both financial and non-financial firms after mandatory IFRS adoption. We also estimate accounting-based prediction models of CDS spreads separately for financial and non-financial US firms as a benchmark. Although US firms also show an increase in the mean and median absolute percentages of prediction errors over the same period, our findings from regressions that use a difference-in-difference design indicate that the increase is significantly greater for firms in countries that adopted IFRS mandatorily. We also find that in the post-adoption period, prediction errors are larger for firms in countries with weaker institutions such as low levels of property rights and more restrictive access to credit.

Mandatory IFRS adoption: friend or foe of M&As? International evidence

ABSTRACT Using a sample of M&As from 19 countries, we identify the effects of mandatory IFRS adoption on M&As by analyzing changes in frequency and in market-perceived benefits for mandatory IFRS adopters (from treatment countries) against non-IFRS adopters (from control countries). Using difference-in-differences analyses, we find (1) frequency with which a treatment firm acquires a foreign (local) firm increases (decreases) in the post-IFRS adoption period; (2) acquirers’ M&A synergies increase for cross-border M&As in treatment countries between public acquirers and public targets; and (3) acquirers’ synergies decrease for within-country M&As in treatment countries between public acquirers and private targets.

Mandatory IFRS Adoption and Earnings Quality: Evidence from the UK

This study examines the effect of mandatory IFRS adoption on the quality of accounting earnings for the firms listed in London Stock Exchange. After examining 9056 firm year observations for the period from 1994 to 2013 the results suggest that the mandatory adoption of IFRS leads to higher earnings quality. This study extends the current literature that examines the consequences of mandating IFRS adoption in the UK and shows that adopting high quality accounting standards leads to high quality accounting numbers.

Effects of the Adoption of IFRS on the Credit Market: Evidence from Brazil

Based on a sample of approximately 6500 credit ratings and 137,000 loan contracts, this paper analyzes the effects of mandatory IFRS adoption on the Brazilian credit market. We find that the IFRS adoption effects were limited to firms displaying improved accounting information quality at the time of transition, lending support to the notion that economic benefits do not necessarily flow from the publication of financial reports in IFRS but, rather, depend on how earnestly firms adopt the recommended disclosure practices.

Why Do Analysts Issue Sales Forecasts? Evidence from Mandatory IFRS Adoption

SYNOPSISThis study uses mandatory adoption of IFRS as a setting to investigate why financial analysts issue supplementary sales forecasts. The demand explanation proposes that analysts issue supplementary forecasts if earnings are not informative and thus investors demand additional accounting information. The reputation explanation posits that analysts are more likely to issue sales forecasts if these forecasts are more accurate and will not cause reputation damage. Using mandatory IFRS adoption as an exogenous shock to analysts' information environment, we find that after firms mandatorily adopt IFRS, analysts are more likely to issue sales forecasts and analysts' sales forecasts become more accurate and less dispersed. The effect of mandatory IFRS adoption is stronger in countries with strong law enforcement and a large difference between local GAAP and IFRS. Further analysis shows that the IFRS effect concentrates on analysts with prior experience with IAS. Overall, the results provide support to the reputation explanation.JEL Classifications: G15; G18; M41.

The Effect of Mandatory IFRS Adoption on the Value of Cash: The Case of Canada

The Effect of Mandatory IFRS Adoption on the Value of Cash: The Case of Canada

Identifying Consequences of Mandatory IFRS Adoption: The Role of Selection Effects

This paper documents potential selection effects inherent in the research designs that are typically used in studies investigating economic or accounting effects of mandatory IFRS adoption. Replicating prior work by Christensen, Hail, and Leuz (2013), we show that one particular selection effect, the IFRS treatment selection effect, which owes to systematic opt outs of firms out of the IFRS mandate, explains prior findings on positive liquidity effects of IFRS adoption. The paper’s implications are twofold. First, we offer a novel explanation how mandatory IFRS adoption and enforcement regulation translate into capital market benefits. Second, we point out limitations of the EU mandatory IFRS adoption setting for testing empirically the effects of mandatory IFRS adoption. We outline research strategies and methodological issues to address those research design and identification challenges.

Discussion of The Effects of Financial Reporting on Bank Loan Contracting in Global Markets: Evidence from Mandatory IFRS Adoption

ABSTRACT This discussion is written for “The Effect of Financial Reporting on Bank Loan Contracting in Global Markets: Evidence from Mandatory IFRS Adoption” by Chen, Chin, Wang, and Yao (2015). I begin with the research question and a brief summary of the main findings of this study and subsequently discuss the strengths and some potential limitations of the study. This study seeks to contribute to the literature by investigating the effect of mandatory IFRS adoption in 18 countries on price and non-price contract terms. The evidence provided in this study suggests that mandatory IFRS adoption increases information asymmetry between firms and loan providers, which leads to trade-offs between contract terms.

Public Policy and Accounting Research: What Is to Be Done?

Singleton-Green [2010. The communication gap: Why doesn't accounting research make a greater contribution to debates on accounting policy? Accounting in Europe, 7(2), 129–145] argues that a communication gap between researchers and those involved in public debates on accounting problems significantly reduces the impact of accounting research. A new ICAEW report, The Effects of Mandatory IFRS Adoption in the EU: a Review of Empirical Research, tries to bridge the communication gap on the subject that it covers. The report found not only a significant amount of relevant research, but also that its usefulness was limited in various ways. The paper makes a number of recommendations to researchers: they should point out any biases in the data they use, address some issues through field work, not assume that surrounding institutions are unchanged, be careful to understand the specific features of the countries they cover, investigate differences in previous research, and state the economic significance of their findings. The paper also makes recommendations for non-academic participants in public policy debates, including: they should actively promote relevant research, help researchers get access to information, and help ensure that researchers have the incentives to do what is needed to benefit public policy.

Secrecy, Mandatory IFRS Adoption and Earnings Quality

This study examines the effect of mandatory IFRS adoption on earnings quality in countries which exhibit high financial secrecy. Earnings quality is proxied by signed abnormal accruals and earnings conservatism. Using 19,324 firm-years from 14 countries over the period 1998-2011, we find that firms in a high-secrecy country tend to report higher abnormal accruals and earnings conservatism, which results in lower earnings quality. On the other hand, we find that mandatory IFRS adoption improves earnings quality by decreasing abnormal accruals and earnings conservatism. Our study provides evidence of the interaction between national culture, as indicated by secrecy, and IFRS adoption and helps to explain differences in earnings quality across different jurisdictions following IFRS adoption.

Financial Statement-Based Forecasts and Analyst Forecasts of Profitability: The Effect of Mandatory IFRS Adoption

This study examines whether mandatory IFRS adoption is associated with an increase in the accuracy of financial statement-based models for forecasting profitability out-of-sample. The study also examines the relation between analyst forecast accuracy and financial statement-based forecast accuracy around mandatory IFRS adoption. We find significant improvement in financial statement-based forecast accuracy around mandatory IFRS adoption. We find significant improvement in analyst forecast accuracy around mandatory IFRS adoption only in countries that concurrently made substantial improvements to financial reporting enforcement. We also show that the improvement in analyst forecast accuracy is associated with the improvement in financial statement-based forecast accuracy and that analysts place more weight on financial statement-based forecasts after mandatory IFRS adoption in countries with concurrent changes in enforcement, while they place the same weight on financial statement-based forecasts after mandatory IFRS adoption in countries without concurrent enforcement changes. Finally, we document that financial statement-based forecasts provide incremental information over analyst forecasts for explaining year-ahead profitability for firms in countries that did not bundle mandatory IFRS adoption with concurrent changes in enforcement. These findings are important for understanding the impact of mandatory IFRS adoption on the predictive ability of financial statements and for understanding analysts’ use of financial statements around mandatory IFRS adoption.

The effects of mandatory IFRS adoption and conditional conservatism on European bank values

This study examines the relationship between the value relevance of accounting information and the conditional conservatism of the European banking sector. Using a bank data set from 15 European countries we study the value relevance of accounting information before and after mandatory IFRS adoption, as well as the extent to which conditional conservatism and value relevance coexist in this context. Our findings suggest that conditional conservatism is positively (negatively) related to value relevance prior to (post) mandatory IFRS adoption. This finding validates the IASB's objectives of higher value relevance and lower conservatism. Additional analyses provide evidence that country-specific features not only affect the potential increase in accounting quality, but also the relationship between value relevance and conditional conservatism.

Why Do Firms Go Grey? Evidence on the Costs of IFRS Compliance and Enforcement

This paper investigates the role of costs associated with mandatory IFRS adoption and pertinent enforcement activities. We exploit an exogenous shock to the cost-benefit trade-offs associated with opting out of the EU-regulated market in Germany, and find that the costs of IFRS compliance and enforcement play an important role for firms’ decisions to downlist, i.e., to migrate from the regulated market to unregulated segments. We exploit two particular features of our setting, the availability of error findings established by the enforcement mechanism, and the observability of market and accounting data after firms downlisted. This enables us to identify a strong enforcement effect, which on many occasions appears to be the principal driver of firms’ decisions to opt out of the IFRS and enforcement mandate. Our findings shed light on the hitherto virtually unexplored costs of the EU’s IAS regulation. They raise concerns about potentially restrictive costs of applying and complying with IFRS, and suggest that self-selection issues need to be addressed when investigating economic effects of mandatory IFRS adoption.

Effect of Mandatory IFRS Adoption on Accounting-Based Prediction Models for CDS Spreads

This study examines the effects of mandatory IFRS adoption on accounting-based prediction models for CDS spreads for a sample of 357 firms in 16 IFRS-adopting countries. We do this by estimating accounting-based prediction models for CDS spreads separately for financial and non-financial firms before and after mandatory IFRS adoption. We find that mean and median absolute percentage prediction errors are larger for both financial and non-financial firms after mandatory IFRS adoption. We also estimate accounting-based prediction models for CDS spreads separately for financial and non-financial US firms before and after mandatory IFRS adoption to obtain prediction errors serve that as a benchmark. Although US firms also exhibit an increase in mean and median absolute percentage prediction errors over the same period, findings from regressions using a difference-in-difference design indicate that the increase is significantly greater for firms in countries that adopted IFRS mandatorily. We also find that in the post-adoption period, prediction errors are larger for firms in countries with low levels of and decreases in legal and regulatory quality.

Ownership Concentration, IFRS Adoption and Earnings Quality: Evidence from an Emerging Market

We investigate the impact of corporate governance characteristics, and IFRS on earnings quality in Borsa Istanbul (BIST). Our contribution stems from the fact that we study moderating effects of mandatory IFRS adoption on the relationship between ownership concentration and earnings quality in a setting characterized by low minority ownership rights protection and high ownership concentration in the form of family-owned pyramids, in a code law country with lax rules and weak enforcement. We use a unique data set that is hand collected. We find strong first time evidence for low persistence of earnings and high earnings management and that ownership concentration impedes earnings quality while foreign ownership enhances it. Mandatory IFRS adoption has had a strong positive effect on earnings persistence and a weaker effect on earnings management. However, the impact of IFRS in reducing the negative impact of only family type ownership concentration is noteworthy.