Mandatory Adoption Research Articles

Pension accounting information and firm value: An analysis of FTSE 100 companies

This study is among the first to take known results in pension accounting and use a sample of UK listed FTSE 100 companies to show that the results are mostly the same as in previous research (on the US companies) into associations between pension accounting information and firm value. We investigate the association between published pension accounting information and the market value of a sample of UK listed FTSE 100 companies in the ten-year period 2006 to 2015. We analyse UK listed firms that report under the IFRS accounting framework (IAS 19), which is a contribution to earlier literature that concentrated on US listed firms that report under the US (FASB) accounting framework that has significantly different pension accounting rules to the IFRS accounting framework. Moreover, the analysis is conducted on a sample of firms that used the method of immediate recognition of actuarial gains and losses in other comprehensive income (or the ‘Fair Value OCI method’) even before mandatory adoption of this method from 2013. We employ a static panel regression analysis on a sample of 70 companies. Empirical findings suggest that there is an association between pension accounting information and firm value, but in some cases, there is less association than there is between other types of accounting information and firm value. Core earnings are value relevant but overall pension earnings (net) are not value relevant although pension costs, pension interest expense and pension income have an association with firm value. Balance sheet numbers have less association with firm value than is the case for core earnings, pension costs, pension interest expense or pension income.

A Behavioural Appraisal of Regulatory Financial Reforms and Implications for Corporate Management

AbstractFinancial markets play a vital role in shaping corporate behaviour, impacting corporate financial decisions ranging from investment and mergers/acquisitions to payout policies and management renumeration. Financial markets, however, are prone to irrational sentiments to trade, driving prices away from fundamental values, with the potential to distort corporate decisions and, hence, corporate efficiency. It is important, therefore, to examine the extent to which regulatory reforms help mitigate the influence of irrationality in financial markets. To this end, we examine the consequences of the mandatory adoption of International Financial Reporting Standards (IFRS) in Europe through the behavioural lens of investor sentiment. In country‐level analyses, we find the impact of irrational sentiment on stock markets to have significantly diminished post‐IFRS. In global pooled analyses, we compare the change in the sentiment–return relationship in countries adopting IFRS with the change in a set of non‐adopting countries to account for stock market trends: weakening of the impact of irrational sentiment on stock prices is greater in IFRS‐adopting countries. Results are robust to a battery of alternative tests and explanations. We provide strong support, therefore, for the success of IFRS in its aim of improving market efficiency, with important implications for corporate management.

A tough pill to swallow? The lessons learned from mandatory RFID adoption

On some occasions, information technology (IT) is mandated rather than voluntary. However, the impact of mandatory IT adoption receives little attention in the operations management literature, and the literature shows divergent predictions about how mandatory IT affects financial performance. Using the case of mandatory radio-frequency identification (RFID) adoption in manufacturing industries, this study applies long-horizon event study to examine 95 U.S. listed firms that have adopted mandatory RFID. The results show that firms achieve significantly strong financial performance from mandatory adoption. Mandatory RFID is particularly beneficial for firms with good financial health, late adopters and high-clockspeed firms. The current study provides a deeper understanding of supplier benefits from mandatory systems supported by dominant customers. Based on the lessons learned from past mandatory RFID adoption, the present study can serve as guidance for future projects and contribute to the literature on operations management and information systems.

The Adoption of AAOIFI Standards by Islamic Banks: Understanding the Microeconomic Consequences

This study seeks to measure the microeconomic consequences of the adoption of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) standards on the conservatism, financial performance (FP), and earnings management (EM) of Islamic banks (IBs). The study draws on data from 122 IBs across 22 countries over a period of eight years (2014–2021), using the generalised method of moments (GMM). The results indicate a positive impact of AAOIFI adoption on financial performance and conservatism compared to non-adopters. Our results further show that IBs that adopt AAOIFI are less involved in EM. After applying robustness checks (corporate governance, inflation, and mandatory adoption of AAOIFI in some countries), our results remain the same. The implications of the study are potentially valuable for those setting accounting standards (such as AAOIFI and International Accounting Standards Board (IASB)), central banks, financial market regulators, investors, governments, and any adopting or non-adopting Islamic financial institutions (IFIs) through identification of the effects of AAOIFI adoption.

Accountabilities and stakeholder expectations regarding asbestos-free building materials supply chain: an actor-network theory perspective

PurposeThe purpose of this paper is to explore issues relating to imposing a ban on the importation of asbestos-contaminated building materials (ACBMs) in the Australian context to better understand the multiple accountabilities and consequences.Design/methodology/approachThis study undertakes a qualitative content analysis of the multiple accountabilities and stakeholder expectations using the lens of actor–network theory. This study further explores the weaknesses and complexities associated with implementing a complete ban on asbestos, ensuring that only asbestos-free building materials are imported to Australia. This study uses data collected from 15 semi-structured interviews with stakeholders, responses from the Australian Border Force to a questionnaire and 215 counter accounts from the media, the Australian Government, industry organizations, non-governmental organizations and social group websites during the period from 2003 to 2021.FindingsThis study reveals that stakeholders' expectations of zero tolerance for asbestos have not been met. This assertion has been backed by evidence of asbestos contamination in imported building materials throughout recent years. Stakeholders say that the complete prevention of the importation of ACBMs has been delayed because of issues in policy implementations, opaque supply chain activities, lack of transparency and non-adherence to mandatory and self-regulated guidelines.Practical implicationsStakeholders expect public and private sector organizations to meet their accountabilities through mandatory adoption of the given policy framework.Originality/valueThis research provides a road map to identify the multiple accountabilities, their related weaknesses and the lack of implementation of the necessary protocol, which prevents a critical aspect of legislation from being effectively implemented.

Accrualls and systematic risk in Brazilian companies

Purpose: The objective of this study was to investigate whether the systematic risk of companies listed on the Brazilian Stock Exchange (B3) is affected by the quality of accounting information. Additionally, it was verified if the systematic risk was affected differently after the mandatory adoption of IFRS in Brazil.
 Methodology: The sample comprised all companies with observations listed on the Brazilian stock exchange (B3) from 2005 to 2021. Empirical research was carried out with descriptive analysis and a quantitative approach. Data were estimated in a panel with fixed effects. The total value of the accruals of Dechow and Dichev (2002) and Jones (1991) were used as measures of the quality of accounting information. The systematic risk measures were estimated using market models and three factors by Fama and French (1993).
 Results: In general, companies that have higher quality accounting information are able to reduce information asymmetry problems, which increase systematic risk, thus, having higher quality in this information reduces the risk to the investor.
 Contributions of the Study: The results of this paper bring practical contributions to the market and investors, who can feel more secure due to clarity and confidence in the information. Even with the adoption of IFRS in Brazil, the main conclusion of our research is that it actually contributes to the quality of information being converted into lower risks.

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.

Evaluating Factors Predicting Smooth Transition to the International Public Sector Accounting Standards in Nigeria

The study is an evaluation of factors affecting smooth transition from Statement of Accounting Standards to the International Public Sector Accounting Standards (IPSAS) by Nigerian public sector entities. The predictive variables were analyzed using the proxies of public perceptions and attitudes towards IPSAS, skills and competencies of accounting practitioners and adequacies of legal and regulatory frameworks to drive the adoption. Scholars argued that IPSAS will lead to more quality and transparent financial reports in the public sector.The adoption journeys in Nigeria, has being marked with wobbling attempts at cash based to accrual based IPSAS due to unpreparedness and institutional failures leading to several shift of deadline for mandatory adoption. The study employed theoretical framework of institutional adequacy and attitudinal change, and agency theories. Survey research non experimental design aligns with the behaviours of the variables under study and so was adopted. To check for reliability of the instrument, I calculated the Cronbach’s alpha and the bivariate correlation coefficient to determine how closely linked items are with each other in the scale. The result fall along acceptable Cronbach of .76. The use of Likert Scale correlates with its long standing history of reliability in social science research. Descriptive statistics was employed to specify the nature of the variables prior to main effect analysis. Multicollinearity diagnosis was adopted to check for any overlapping relationship between the variables and Z-score statistics to test for outliers in the data set and clean up my data set by testing for all statistical assumptions. Stratified sampling strategy was found most appropriate to draw representative samples from the sampling frames. 640 respondents were sampled with 20 non respond. This represents mere 3.125% as missing data which is considered of no significant effect on the data. Data was analyzed using multiple regressions and Pearson Correlation coefficient to test the hypothesis and assess the relationship between the variables. The result indicates that there exists significant relationship between the independent and dependent variables, and that negative public perception and low political will are strong barriers to successful implementation of same in Nigeria. Respondents held that Nigeria accountant are not skilled and competent to handle the migration to accrual IPSAS and legislative and regulatory framework is not adequate enough to support IPSAS adoption. The study recommends curriculum overhauls, enacting and amendments of relevant laws to accommodate the teaching and regulation of IPSAS adoption in the public service.

National culture and earnings management in emerging markets: the role of IFRS mandatory adoption

National culture and earnings management in emerging markets: the role of IFRS mandatory adoption

The consequences of environmental disclosure quality: Evidence from France

We examine the consequences of environmental disclosure (ED) quality. We test to see if ED quality affects the cost of equity capital (COEC), market valuation, and institutional investors. We focus on the French context as France is one of the pioneer countries in the mandatory adoption of ED. Our sample includes companies listed in the Société des Bourses Françaises (SBF) 120 index for the period 2009–2014. To measure ED quality, we use the qualitative attributes of information quality. The manual content analysis is then used to calculate the score of ED quality. We then link our ED measurement with measures of COEC, market valuation, and institutional ownership. Our analysis offers several interesting findings. First, it shows that ED quality negatively impacts COEC. It also shows that ED quality is negatively associated with higher market valuations. Finally, it provides evidence that ED quality positively affects institutional ownership. Our results indicate that enhancing ED quality leads to desirable economic consequences for disclosing companies and investors.

Deviations from the Mandatory Adoption of IFRS in Europe? Why Non-Adoption Does Not Mean Non-Compliance

Deviations from the Mandatory Adoption of IFRS in Europe? Why Non-Adoption Does Not Mean Non-Compliance

National Culture and Earnings Management in Emerging Markets: The Role of IFRS Mandatory Adoption

National Culture and Earnings Management in Emerging Markets: The Role of IFRS Mandatory Adoption

Costs of voting and firm performance: Evidence from RegTech adoption in Chinese listed firms

Employing the 2014 mandatory adoption of online shareholder voting in China, we show that the reduction of voting costs through online voting is positively related to participation in shareholder meetings and future firm performance. Our mechanism analysis suggests that the improved firm performance is mainly driven by the enhanced governance role played by informed investors and institutional investors. Further analysis shows that online shareholder voting makes the firms more attractive to mutual fund managers who are far away from the firms. Moreover, we find that the improved firm performance is concentrated in firms with low controlling shareholder ownership, and that online shareholder voting is associated with an increased likelihood of vetoing proposals and lower tunneling.

Turtles, TEDs, tuna, dolphins, and diffusion of innovations: key drivers of adoption of bycatch reduction devices

AbstractFisheries extension programmes frequently fail to secure mandatory or voluntary adoption of bycatch reduction devices and techniques. Approaches for improving the outcomes of extension programmes are often based on ad hoc assessments and do not consider human behaviour or change theories. This paper offers an in-depth analysis of extension activities that led to various adoption outcomes in two prominent bycatch case studies in the United States: turtle excluder devices in shrimp trawl fisheries and dolphin bycatch in the tuna purse seine fishery. Using a grounded theory approach to text analysis of interviews and documents, I examine five periods of voluntary or mandatory adoption efforts. I explain the outcomes through the lens of diffusion of innovation theory. The most effective extension programme involved informative and persuasive efforts, enforced regulations, and commercially practical bycatch reduction devices. Voluntary adoption occurred under exceptional circumstances of public and political pressure and a device that offered substantial benefits to the adopter. The two periods of successful adoption applied the most core principles of diffusion theory. This paper concludes with recommendations for how change agents can apply diffusion theory to future fisheries extension programmes to improve the adoption of bycatch reduction devices.

International Financial Reporting Standard (IFRS) 9 and the Financial Performance of Commercial Banks in Kenya

The International Financial Reporting Standard (IFRS) 9 presents the latest accounting treatment for financial assets and liabilities, impairment procedures, hedge and fair value accounting. This new regulation largely replaces the International Accounting Standards 39. The last form of IFRS 9 was published in July 2014 with the mandatory global compliance date for IFRS 9 set on January 1, 2018, with earlier application encouraged. The main distinctive features of this standard are described in terms of hedge accounting, recognition and classification, and fair value measurement of the financial instruments. The objective of the research study was to determine the impact of the mandatory adoption of IFRS 9 on the financial performance of commercial banks in Kenya. The study adopted an event study approach or design by analyzing the quarterly financial statements of the commercial banks submitted to the Central Bank of Kenya and comparing the performance of the commercial banks before the introduction of the IFRS 9 and after its adoption. The study’s findings were that returns on assets and returns on equity were on an upward trend despite the introduction of IFRS 9. This was contrary to the expectation of poor performance since lower earnings due to loan loss provisions were expected to have a material effect on profitability.

IFRS for SMEs adoption, corporate governance, and quality of financial statements: evidence from Dominican Republic and El Salvador

PurposeThe purpose of this study is to examine the indirect relationship between the mandatory adoption of International Financial Reporting Standards for small and medium-sized enterprises (IFRS for SMEs) and the corporate governance index (CGI) by checking the mediating effect of the quality of financial statements (QFS) on this relationship.Design/methodology/approachThe main objective of the IFRS for SMEs standard is to meet the specific needs of SMEs in transition and developing economies. Here, the authors used the structural equation method to investigate SMEs in countries that mandate the application of IFRS for SMEs for the years 2010 (pre-adoption) and 2016 (post-adoption). The final sample covered two emerging countries: the Dominican Republic and El Salvador.FindingsThe results show a positive association between the adoption of IFRS for SMEs, CGI and QFS. Furthermore, the findings confirm that the relationship between IFRS for SMEs adoption and CGI is under the control of the QFS.Originality/valueThis study provides standard setters and managers of SMEs with an overview of the importance of QFS on the significance of this relationship in emerging countries. The study contributes to the literature by examining the indirect relationship between IFRS for SMEs and CGI and building a CGI that integrates a set of governance practices linked to SMEs.

The impact of mandatory adoption of IFRS in Saudi Arabia

We examine whether the adoption of International Financial Reporting Standards (IFRS) by companies reporting under an Islamic accounting framework is associated with the greater comparability and relevance of financial reporting. Using a sample of Saudi Arabian companies listed on Tadawul, the Saudi stock market, we compare accounting figures reported under Saudi GAAP (Generally Accepted Accounting Principles) issued by the Saudi Organization for Certified Public Accountants (SOCPA) and IFRS for the same year. The amount of reported shareholders’ equity and net income decreased in the transition to IFRS as a result of adjustments primarily related to consolidation and strategic investments, property, plant and equipment, employee benefits, and other liabilities. Our empirical findings document several reasons for the improved relevancy of the subject financial reports. The main finding was that adopting IFRS enhanced the perceived relevancy of the reports. Additionally, reporting in English versus reporting in Arabic was found to have favorably affected relevancy. Regarding transparency, based on the number of pages and informative notes, reporting under IFRS also engendered improvements to the financial reporting process. The results confirm that IFRS adoption can occur in a very different accounting regime and have positive effects on capital markets and their accounting environment.

Situation of Earning Management After Revision of the Ohada Accounting Standards Adopted on January 26, 2017

Following the mandatory adoption of the revised OHADA Accounting Standards that have moved closer to the International Financial Reporting Standards (IFRS), this study examines whether the level of Earnings Management of Companies making public offers or listed firms, in the West African Stock Exchange Market Abidjan-Ivory Coast (BRVM) has reduced. The study avails of Financial Statement figures during pre-adoption (2014–2017) and post-adoption (2018–2021) periods, for 26 selected listed firms in the BRVM. Findings suggest that firms in the post-adoption period of the revised OHADA Accounting Standards (2018–2021) are less likely to smooth earnings compared to the pre-adoption period (2014–2017). This indicates that adopting accounting standards of higher quality can bring an improvement in Financial Reporting Quality, everything being equal.

Does the implementation of IFRS improve transparency regarding the company's financial conditions?: evidence from an emerging market

PurposeThis study aims to examine whether there are differences between financial statements prepared in accordance with International Financial Reporting Standards (IFRS) and financial statements prepared in accordance with local accounting standards in terms of its ability to present the financial conditions of companies listed on the Saudi Stock Exchange as one of the emerging markets.Design/methodology/approachData on study variables were obtained from the published financial statements of 67 of listed companies in the Saudi Stock Exchange during the period 2014–2019. The study addressed the research hypotheses by using Altman Z-score model. Both the T-test and Wilcoxon rank test were used to investigate the significance of differences between the values of Z-score and the individual variables included in the model in the pre- and post-IFRS mandatory adoption periods.FindingsThe results revealed a decrease in the values of Z-score as well as the values of the individual variables included in the model in the period following the adoption of IFRS than it was before the adoption of IFRS, which indicates the ability of IFRS to show the financial conditions of companies more transparently than local accounting standards. However, the results of the T-test and Wilcoxon test showed that these decreases were not statistically significant.Research limitations/implicationsThis study has some limitations, including the small sample size as a result of the small size of the Saudi Stock Exchange, As well as the reliance of this study only on the Altman model with its five variables in assessing financial conditions without examining the impact of other factors that may affect the financial conditions of companies.Practical implicationsFinancial conditions of the companies have important implications for multiple parties such as management, government, investors and others as an early warning sign that enables them to take the necessary measures early before the actual bankruptcy occurs and what results in costs.Originality/valueAlthough assessing financial conditions of the companies is one of the basic uses of accounting information, this topic has not received sufficient attention as a means to test the benefits of adopting IFRS, especially in emerging markets such as Saudi Stock Exchange. This is the first study to examine the impact of adopting IFRS on the transparency of financial reporting in assessing financial conditions in Saudi Arabia.

Disincentives to exchange customized local GAAP for IFRS

The global adoption of International Financial Reporting Standards (IFRS) resulted in the loss of local Generally Accepted Accounting Principles (GAAP). Some local GAAPs were tailored to capture the adopting jurisdictions' economic nuances, which IFRS may not address. One example is our setting, where, unlike IFRS, Canadian GAAP allowed the recognition of regulatory claims (i.e., assets and liabilities). Given this disparity, Canadian regulators granted rate-regulated entities the choice to opt out of Canada’s mandatory adoption of IFRS. Leveraging this unique setting, we test whether the loss of allowances under local GAAP is costly enough to deter companies from adopting IFRS. We find evidence that utilities with a history of capitalizing regulatory assets under Canadian GAAP are significantly less likely to adopt IFRS. This relation is more pronounced when a company has higher regulatory assets recognized under local GAAP, engages with the US capital markets, and has a high perceived cost of raising future capital. However, we find that the future cost of capital is lower for entities that adopt IFRS after historically capitalizing regulatory assets. Our results identify a new cost of adopting IFRS largely unexplored in the literature: the cost of losing jurisdictionally tailored accounting standards not included within IFRS.