Voluntary International Financial Reporting Standards Research Articles

The effect of voluntary international financial reporting standards adoption on information asymmetry in the stock market: Evidence from Japan

This study investigates how voluntary International Financial Reporting Standards (IFRS) adoption impacts information asymmetry in the stock market. We analyze data from firms in Japan, where local accounting standards have substantially converged with IFRS but are more rules-based than principles-based IFRS. These different implementation approaches allow us to investigate how increased accounting flexibility influences recognition and measurement practices, attenuating the effects of accounting standard differences on the level of accounting rule existence or non-existence. We find that information asymmetry increases after voluntary IFRS adoption, which is driven by small- and medium-sized IFRS adopters’ decrease in earnings quality after voluntary IFRS adoption. Additional analyses reveal that firms’ reporting incentives and accounting resources influence these changes. These results suggest that IFRS’s increased accounting flexibility in recognition and measurement practices worsens the information environments of firms with weak incentives to commit to transparent financial reporting or fewer accounting resources (i.e., small- and medium-sized firms).

Determinants of Voluntary International Financial Reporting Standards Application: Review from Theory to Empirical Research

IFRS has become a global financial reporting standard, with many countries adopting it as their primary framework and others contemplating its adoption. Research on voluntary IFRS adoption sheds light on global convergence progress and its impact on accounting practices. This study aims to elucidate the factors influencing the voluntary adoption of IFRS by examining, analyzing, and synthesizing findings from empirical studies conducted worldwide. The research scrutinizes 185 relevant studies on the voluntary adoption of IFRS published before August 2023, employing a systematic literature review methodology. Our assessment reveals that, in prior research, the factors influencing the voluntary adoption of IFRS are categorized into seven main factors, including corporate operations, capital structure, ownership structure, internationalization, financial performance, corporate governance, and several other factors. These studies employ various methodologies, including data surveys and cross-sectional data, to estimate the relationships between these factors and the voluntary adoption of IFRS. In addition to providing an evaluation of the research in this field, this study can serve as a framework for future researchers to link and compare the results of different studies. We anticipate that this research will be beneficial for future scholars interested in the factors influencing the voluntary adoption of IFRS. Furthermore, the study proposes essential guidance for future research considerations.

IFRS Adoption and Financial Reporting Quality in Nigeria: A Conceptual Approach

The adoption of International Financial Reporting Standards (IFRSs) in different countries of the world have become a contemporary issue particularly with regard to the reliability of financial reports. The conceptual and empirical examination of the IFRS adoption and financial reporting quality across different sectors and countries. The study established that some studies used positive approach and some used positive paradigm. Studies used either of primary or secondary source of data, while some used mixed approach. The study found that IFRS adoption are determined by comparing the parameters concerned between pre and post IFRS regimes in given jurisdictions. The review concept and empirical evidences of IFRS adoption and financial reporting quality from many countries reveals that economic consequences of IFRS adoption significantly differ across jurisdictions though its impact has been reported to be positive in majority of studies. Also, few studies report indifferent and negative effects of IFRS adoption on financial reporting quality. The study found that it is argued that IFRS is more financial position focused. It is also observed that the impact of mandatory adoption of IFRS tends to be greater disputed than that caused by voluntary IFRS adoption. In addition, IFRS adoption are found to supersede many other domestic financial reporting standards such as Statement of Accounting Standard (SAS) in Nigeria.

Financial Reporting in Family Firms: A Socio-Emotional Wealth Approach Toward Information Quality

The strategic choices of family firms are influenced by economic and non-economic reference points. We contend that the preservation of the affect-related values a family derives from its ownership position in a firm (i.e., socio-emotional wealth – SEW) affects financial reporting quality and earnings management strategies. Using the voluntary International Financial Reporting Standards (IFRS) adoption by Italian unlisted family firms as a natural laboratory setting, we found that the level of SEW endowment impacts on financial reporting quality. Furthermore, we observe that IFRS adoption is associated with less accrual but higher real activity manipulation for increasing levels of SEW endowment.

Financial reporting in family firms: a socioemotional wealth approach toward information quality

ABSTRACT The strategic choices of family firms are influenced by economic and noneconomic reference points. We contend that the preservation of the affect-related values a family derives from its ownership position in a firm (that is, socioemotional wealth [SEW]) affects financial reporting quality and earnings management strategies. Using the voluntary International Financial Reporting Standards (IFRS) adoption by Italian unlisted family firms as a natural laboratory setting, we found that the level of SEW endowment impacts on financial reporting quality. Furthermore, we observe that IFRS adoption is associated with less accrual, but higher real activity manipulation for increasing levels of SEW endowment.

Determinants of Voluntary International Financial Reporting Standards Adoption in Poland

The paper examines the determinants of voluntary International Financial Reporting Standards (IFRS) adoption in Poland. In doing so, it empirically confirms the impact of diverse CEO and supervisory board characteristics on voluntary IFRS adoption. The paper focuses on 446 publicly traded production companies from Poland. The analysis is based on logistic regression analysis. The empirical investigation confirms the impact on voluntary IFRS adoption of such factors as company size, international investors, international supervisory board, number of supervisory board members, CEO nationality. The paper contributes to the assessment of voluntary IFRS adoption determinants, by presenting for the first time CEO and supervisory board characteristics and their impact on voluntary International Financial Reporting Standards (IFRS) adoption, and the determinants of IFRS adoption from Central and Eastern Europe. The paper enhances existing knowledge of voluntary IFRS adoption by incorporating new CEO and supervisory board characteristics, thus closing a gap in the relevant literature. The results of the paper are significant from the supervisor’s perspective, the quality of financial statements and the effectiveness of corporate governance systems.

Informational Consequences of Mandatory IFRS Adoption in China

In China, International Financial Reporting Standards (IFRS) have become mandatory for listed firms in 2007. While earlier research on “voluntary” adopters has provided valuable insights on the impact of IFRS disclosure, these results cannot be generalised in a mandatory setting. We expect effects from mandatory IFRS adoption to be different from those documented for voluntary IFRS adopters since the former group is essentially forced to adopt IFRS. The empirical model, relating to stock price synchronicity with adoption of IFRS, and other firm-specific control variables were analysed using both univariate and multivariate techniques. Different types of panel data estimates were used and compared so as to interpret the results with the best-suited parameters for different data sets for different markets. Studying data covering the period from 2001-2013, the present study examines whether mandatory adoption of IFRS reduces Stock Price Synchronicity for Chinese firms. The empirical results show that IFRS adoption improves information environment by the capitalization of firm-specific information into stock prices, thereby reduces the Stock Price synchronicity. The paper further examines if the information impact was homogeneous across industries. This pattern of decrease in stock price synchronicity after adoption of IFRS is different for different industries taken for analysis. Aerospace & Defense, Automobiles Beverages, Metals & Mining, Retailer& Real Estate Operations have reduced synchronicity but other industries such as Biotech, Electric utilities, Electronic, Leisure products, Renewable energy and Telecom have increased synchronicity. For these industries, the low reliance on market wide information makes reasonable economic sense because they have relatively low demand elasticity. Hence, in demand inelastic industries, future price sensitive factors remain constant and so a changed IFRS accounting regime has little marginal impact. This study provides a different methodological approach by concentrating on Industry wide information effects from the mandatory adoption. These findings have important implications that apply not only to China, but also to other emerging and transitional economies such as India where IFRS is yet to be mandated. Moreover it will help regulators, academicians and practitioners to assess the informational benefit of adopting IFRS.

IFRS adoption, reporting incentives and financial reporting quality in private firms

AbstractThis study examines financial reporting quality (FRQ) effects around voluntary International Financial Reporting Standards (IFRS) adoptions by German private firms across two important dimensions, earnings quality and disclosure practices. To capture differences in the motivations for IFRS adoptions, we identify four different types of IFRS adopting firms based on a comprehensive set of firm characteristics. We observe earnings quality improvements around IFRS adoptions primarily for one type of firm, which is young, fast growing and seeking access to public equity markets. Using a matched sample of private German GAAP and IFRS reporting firms, we find some evidence suggesting that IFRS also contribute to higher earnings quality. Recognizing that our earnings quality metrics are only incomplete measures of FRQ, we also compare the disclosure practices of IFRS and German GAAP firms. We find that all IFRS firm types disclose significantly more information in their financial reports and show a higher propensity to publish their financial reports voluntarily on the corporate website. Our findings indicate that failure to identify earnings quality changes around IFRS adoption cannot be automatically interpreted as IFRS adoption having no effect on the FRQ of (private) firms. Collectively, our results suggest that both incentives and accounting standards shape private firms’ FRQ.

Auditor choice in Italian non-listed firms

Purpose This paper aims to investigate auditor choice in those Italian non-listed firms adopting the “traditional” model of corporate governance. In Italy, non-listed firms can choose between two types of auditor: the Board of Statutory Auditors (BSA), that is the statutory auditors, or an “external” auditor. At the same time, a BSA conducts the administrative auditing for all companies with equity exceeding €120,000. Design/methodology/approach The paper estimates a logistic regression model of firm auditor choice between an external auditor and the BSA, which incorporates variables proxying for both agency conflict and organizational complexity effects. Findings The results show that of the potential agency factors, only board independence drives auditor choice, whereas organizational complexity and risk factors including firm size, investment in inventories, subsidiary status and complexity drive auditor choice. These results may be explained in the administrative audit role of the BSA, which monitors both day-by-day firm operations and the financial statements preparation “project”. Stakeholders as a result are reassured that, in general, their interests are protected. Finally, it was found that legal form and voluntary International Financial Reporting Standards compliance exert an impact on auditor choice. Originality/value The paper provides support for an internal yet independent auditing body such as the Italian BSA as a wider model for corporate governance in European non-listed firms (OECD, 2004 and 2015). The BSA as an administrative and financial auditing body made up solely of independent highly qualified professionals can work within the firm on an operational basis, and in so doing can increase stakeholder protection.

THE EFFECT OF VOLUNTARY IFRS ADOPTION BY UNLISTED FI RMS ON EARNINGS QUALITY AND THE COST OF DEBT: EMPIRICAL EVIDENCE FROM KOREA

The present study empirically examines how voluntary International Financial Reporting Standards (IFRS) adoption influences the earnings quality and the cost of debt of unlisted firms in Korea. Since 2011, when the adoption of IFRS by listed firms became mandatory, more unlisted firms have adopted IFRS voluntarily, improving the transparency and reliability of their accounting information. Using the sample of unlisted firms with 3year study period of preand post-IFRS adoption, we examine whether IFRS voluntary adopters show both lower discretionary accruals and the cost of debt than those of non adopters, and whether both discretionary accruals and the cost of debt of voluntary adopters decrease after IFRS adoption. We employ the Heckman's two stage approach in order to avoid sample selection bias and cross sectional pooled OLS regression with or without clustering test. We complimentary report the results from firm-fixed effect panel model to generalise the results. The results show that firms which adopt IFRS have a higher earnings quality and a lower cost of debt that those which do not. These findings suggest that when unlisted firms issue bonds and borrow money, IFRS adoption contributes to decreasing the cost of debt.

Corporate Governance and Stock Prices of Japanese Firms Adopting International Financial Reporting Standards: Early Evidence

Two issues are investigated herein, using Japanese data: (1) the relationship between corporate governance and voluntary adoption of International Financial Reporting Standards (IFRS), and (2) market reactions to announcements of such an adoption of IFRS. Prior studies suggest that the economic benefits of IFRS adoption are limited to countries with strong enforcement of laws and regulations, generating concerns as to whether IFRS adoption would bring the intended benefits in Japan. Based on a probit model, we find that the probability of voluntary IFRS adoption is higher for the firms that are younger, larger, less leveraged, audited by a Big 4 audit firm, and have a higher foreign shareholders ratio. This result is consistent with the notion that firms that have greater incentives to provide more information tend to choose voluntary adoption of IFRS. In addition, an event study shows that stock prices of the firms that announce their adoption of IFRS tend to increase compared to other firms that have a similar probability of IFRS adoption, except for the firms switching from the U.S. GAAP to IFRS. Our results show that voluntary IFRS adoption is positively evaluated in Japan in that the country has transformed its economic and business environment over the past few decades.

The Adoption of Internationally Recognized Accounting Standards

We examine whether the adoption of internationally recognized accounting standards is associated with a greater sensitivity of credit ratings to accounting information. We find that credit ratings are significantly more sensitive to the accounting default factor post voluntary International Financial Reporting Standards (IFRS)/U.S. Generally Accepted Accounting Principle (GAAP) adoption. Similar evidence is also found post mandatory IFRS adoption in countries with strong rules of law. Collectively, the above evidence suggests that firms’ incentives to comply are important in determining the consequences of accounting standard changes.