World Scientific
  • Search
  •   
Skip main navigation

Cookies Notification

We use cookies on this site to enhance your user experience. By continuing to browse the site, you consent to the use of our cookies. Learn More
×
Our website is made possible by displaying certain online content using javascript.
In order to view the full content, please disable your ad blocker or whitelist our website www.worldscientific.com.

System Upgrade on Tue, Oct 25th, 2022 at 2am (EDT)

Existing users will be able to log into the site and access content. However, E-commerce and registration of new users may not be available for up to 12 hours.
For online purchase, please visit us again. Contact us at [email protected] for any enquiries.

Voluntary IFRS Adoption by Unlisted European Firms: Impact on Earnings Quality and Cost of Debt

    https://doi.org/10.1142/S1094406020500134Cited by:7 (Source: Crossref)

    This paper investigates the impact of the voluntary adoption of International Financial Reporting Standards (IFRS) by unlisted firms on both their financial reporting quality and cost of debt. Using a large international sample of unlisted EU companies for which the choice of IFRS is voluntary, we find that IFRS adoption has a positive impact on financial reporting quality and results in a decrease in the cost of debt. In addition, unlisted firms adopting IFRS are more likely to be acquired or go public in the years subsequent to the adoption, relative to other unlisted firms. We document a tangible benefit of voluntary IFRS adoption by unlisted firms.

    JEL Classifications: M41, M48, C33

    References

    • Ahmed, A. S., Neel, M. & Wang, D. (2013). Does mandatory adoption of IFRS improve accounting quality? Preliminary evidence. Contemporary Accounting Research, 30(4), 1344–1372. CrossrefGoogle Scholar
    • Albu, C. N., Albu, N., Pali-Pista, S. F., Gîrbină, M. M., Selimoglu, S. K., Kovács, D. M., Lukacs, J., Mohl, G., Mullerova, L., Pasekova, M., Arsoy, A. P., Sipahi, B. & Strouhal, J. (2013). Implementation of IFRS for SMEs in emerging economies: Stakeholder perceptions in the Czech Republic, Hungary, Romania and Turkey. Journal of International Financial Management & Accounting, 24(2), 140–175. CrossrefGoogle Scholar
    • Ball, R. & Shivakumar, L. (2005). Earnings quality in UK private firms: Comparative loss recognition timeliness. Journal of Accounting and Economics, 39(1), 83–128. CrossrefGoogle Scholar
    • Barth, M. E., Landsman, W. R. & Lang, M. H. (2008). International accounting standards and accounting quality. Journal of Accounting Research, 46(3), 467–498. CrossrefGoogle Scholar
    • Bassemir, M. (2018). Why do private firms adopt IFRS? Accounting and Business Research, 48(3), 237–263. CrossrefGoogle Scholar
    • Bassemir, M. & Novotny-Farkas, Z. (2018). IFRS adoption, reporting incentives and financial reporting quality in private firms. Journal of Business Finance & Accounting, 45(7–8), 759–796. CrossrefGoogle Scholar
    • Basu, S. (1997). The conservatism principle and the asymmetric timeliness of earnings. Journal of Accounting and Economics, 24(1), 3–37. CrossrefGoogle Scholar
    • Bharath, S. T., Sunder, J. & Sunder, S. (2008). Accounting quality and debt contracting. The Accounting Review, 83, 1–28. CrossrefGoogle Scholar
    • Bonacchi, M., Cipollini, F. & Zarowin, P. (2018). Parents’ use of subsidiaries to “push down” earnings management: Evidence from Italy. Contemporary Accounting Research, 35(3), 1332–1362. CrossrefGoogle Scholar
    • Bradshaw, M. T. & Miller, G. S. (2008). Will harmonizing accounting standards really harmonize accounting? Evidence from non-US firms adopting US GAAP. Journal of Accounting, Auditing & Finance, 23(2), 233–264. CrossrefGoogle Scholar
    • Burgstahler, D. C., Hail, L. & Leuz, C. (2006). The importance of reporting incentives: Earnings management in European private and public firms. The Accounting Review, 81(5), 983–1016. CrossrefGoogle Scholar
    • Byard, D., Li, Y. & Yu, Y. (2011). The effect of mandatory IFRS adoption on financial analysts’ information environment. Journal of Accounting Research, 49(1), 69–96. CrossrefGoogle Scholar
    • Callao, S. & Jarne, J. I. (2010). Have IFRS affected earnings management in the European Union? Accounting in Europe, 7(2), 159–189. CrossrefGoogle Scholar
    • Cameran, M., Campa, D. & Pettinicchio, A. (2014). IFRS adoption among private companies: Impact on earnings quality. Journal of Accounting, Auditing & Finance, 29(3), 278–305. CrossrefGoogle Scholar
    • Carey, P. & Simnett, R. (2006). Audit partner tenure and audit quality. The Accounting Review, 81(3), 653–676. CrossrefGoogle Scholar
    • Chaney, P. K., Jeter, D. C. & Shivakumar, L. (2004). Self-selection of auditors and audit pricing in private firms. The Accounting Review, 79(1), 51–72. CrossrefGoogle Scholar
    • Chen, F., Hope, O. K., Li, Q. & Wang, X. (2011). Financial reporting quality and investment efficiency of private firms in emerging markets. The Accounting Review, 86(4), 1255–1288. CrossrefGoogle Scholar
    • Christensen, H. B., Lee, E., Walker, M. & Zeng, C. (2015). Incentives or standards: What determines accounting quality changes around IFRS adoption? European Accounting Review, 24(1), 31–61. CrossrefGoogle Scholar
    • Commission of the European Communities. (1978). Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council Directive 84/253/EEC. Available at: http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32006L0043&from=en. Google Scholar
    • Commission of the European Communities. (2008). Report from the commission to the council and the European Parliament on the operation of Regulation (EC) No 1606/2002 of 19 July 2002 on the application of international accounting standards. Available at: http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52008DC0215&from=EN. Google Scholar
    • Covrig, V. M., DeFond, M. L. & Hung, M. (2007). Home bias, foreign mutual fund holdings, and the voluntary adoption of international accounting standards. Journal of Accounting Research, 45(1), 41–70. CrossrefGoogle Scholar
    • Daske, H., Hail, L., Leuz, C. & Verdi, R. (2013). Adopting a label: Heterogeneity in the economic consequences around IAS/IFRS adoptions. Journal of Accounting Research, 51(3), 495–547. CrossrefGoogle Scholar
    • De George, E. T., Li, X. & Shivakumar, L. (2016). A review of the IFRS adoption literature. Review of Accounting Studies, 21(3), 898–1004. CrossrefGoogle Scholar
    • Dechow, P. M. & Dichev, I. D. (2002). The quality of accruals and earnings: The role of accrual estimation errors. The Accounting Review, 77(s-1), 35–59. CrossrefGoogle Scholar
    • Dechow, P. M., Sloan, R. G. & Sweeney, A. P. (1995). Detecting earnings management. The Accounting Review, 70(2), 193–225. Google Scholar
    • Dechow, P. M., Ge, W. & Schrand, C. (2010). Understanding earnings quality: A review of the proxies, their determinants and their consequences. Journal of Accounting and Economics, 50(2–3), 344–401. CrossrefGoogle Scholar
    • DeFond, M. L. & Park, C. W. (2001). The reversal of abnormal accruals and the market valuation of earnings surprises. The Accounting Review, 76(3), 375–404. CrossrefGoogle Scholar
    • DeFond, M., Hu, X., Hung, M. & Li, S. (2011). The impact of mandatory IFRS adoption on foreign mutual fund ownership: The role of comparability. Journal of Accounting and Economics, 51(3), 240–258. CrossrefGoogle Scholar
    • Doukakis, L. C. (2014). The effect of mandatory IFRS adoption on real and accrual-based earnings management activities. Journal of Accounting and Public Policy, 33(6), 551–572. CrossrefGoogle Scholar
    • EU Commission. (2000). EU financial reporting strategy: The way forward. Communication from the Commission to the Council and the European Parliament. Available at: https://www.iasplus.com/en/binary/resource/cec.pdf. Google Scholar
    • EU Commission. (2008). Proposal for a Council Regulation on the statute for a European private company. Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52008PC0396&from=EN. Google Scholar
    • European Confederation of Directors Associations. (2010). Corporate governance guidance and principles for unlisted companies in Europe. Available at: http://www.ecoda.org. Google Scholar
    • Fonseka, M., Rajapakse, T. & Richardson, G. (2019). The effect of environmental information disclosure and energy product type on the cost of debt: Evidence from energy firms in China. Pacific-Basin Finance Journal, 54, 159–182. CrossrefGoogle Scholar
    • Francis, J. R., Khurana, I. K., Martin, X. & Pereira, R. (2008). The role of firm-specific incentives and country factors in explaining voluntary IAS adoptions: Evidence from private firms. European Accounting Review, 17(2), 331–360. CrossrefGoogle Scholar
    • Gernon, H. & Wallace, R. O. (1995). International accounting research: A review of its ecology, contending theories and methodologies. Journal of Accounting Literature, 14, 54–106. Google Scholar
    • Graham, J. R., Li, S. & Qiu, J. (2008). Corporate misreporting and bank loan contracting. Journal of Financial Economics, 89, 44–61. CrossrefGoogle Scholar
    • Guggiola, G. (2010). IFRS adoption in the EU, accounting harmonization and markets efficiency: A review. The International Business & Economics Research Journal, 9(12), 99–112. Google Scholar
    • Haller, A. & Eierle, B. (2004). The adaptation of German accounting rules to IFRS: A legislative balancing act. Accounting in Europe, 1(1), 27–50. CrossrefGoogle Scholar
    • Hanlon, M. & Heitzman, S. (2010). A review of tax research. Journal of Accounting and Economics, 50(2), 127–178. CrossrefGoogle Scholar
    • Heckman, J. (1979). The sample selection bias as a specification error. Econometrica, 47(1), 153–162. CrossrefGoogle Scholar
    • Hope, O. K., Langli, J. C. & Thomas, W. B. (2012). Agency conflicts and auditing in private firms. Accounting, Organizations and Society, 37(7), 500–517. CrossrefGoogle Scholar
    • Horton, J., Serafeim, G. & Serafeim, I. (2013). Does mandatory IFRS adoption improve the information environment?. Contemporary Accounting Research, 30(1), 388–423. CrossrefGoogle Scholar
    • Houqe, M. N., van Zijl, T., Dunstan, K. & Karim, A. W. (2012). The effect of IFRS adoption and investor protection on earnings quality around the world. The International Journal of Accounting, 47(3), 333–355. CrossrefGoogle Scholar
    • Iliev, P., Lins, K. V., Miller, D. P. & Roth, L. (2015). Shareholder voting and corporate governance around the world. Review of Financial Studies, 28(8), 2167–2202. CrossrefGoogle Scholar
    • Jeanjean, T. & Stolowy, H. (2008). Do accounting standards matter? An exploratory analysis of earnings management before and after IFRS adoption. Journal of Accounting and Public Policy, 27(6), 480–494. CrossrefGoogle Scholar
    • Johnson, V. E., Khurana, I. K. & Reynolds, J. K. (2002). Audit-firm tenure and the quality of financial reports. Contemporary Accounting Research, 19(4), 637–660. CrossrefGoogle Scholar
    • Jones, J. J. (1991). Earnings management during import relief investigations. Journal of Accounting Research, 29(2), 193–228. CrossrefGoogle Scholar
    • Joos, P. & Lang, M. (1994). The effects of accounting diversity: Evidence from the European Union. Journal of Accounting Research, 32, 141–168. CrossrefGoogle Scholar
    • Joos, P. & Wysocki, P. D. (2006). Non-convergence in international accrual accounting: The role of institutional and real operating effects (Working Paper). MIT. Google Scholar
    • Jung, J., Herbohn, K. & Clarkson, P. (2018). Carbon risk, carbon risk awareness and the cost of debt financing. Journal of Business Ethics, 150(4), 1151–1171. CrossrefGoogle Scholar
    • Karamanou, I. & Nishiotis, G. P. (2009). Disclosure and the cost of capital: Evidence from the market’s reaction to firm voluntary adoption of IAS. Journal of Business Finance & Accounting, 36(7–8), 793–821. CrossrefGoogle Scholar
    • Kennedy, P. (2008). A Guide to Econometrics. Hoboken, NJ: Wiley-Blackwell. Google Scholar
    • Kim, J. B., Chung, R. & Firth, M. (2003). Auditor conservatism, asymmetric monitoring, and earnings management. Contemporary Accounting Research, 20(2), 323–359. CrossrefGoogle Scholar
    • Kim, J. B. & Shi, H. (2012a). Voluntary IFRS adoption, analyst coverage, and information quality: International evidence. Journal of International Accounting Research, 11(1), 45–76. CrossrefGoogle Scholar
    • Kim, J. B. & Shi, H. (2012b). IFRS reporting, firm-specific information flows, and institutional environments: International evidence. Review of Accounting Studies, 17(3), 474–517. CrossrefGoogle Scholar
    • Kim, J. B., Simunic, D. A., Stein, M. T. & Yi, C. H. (2011a). Voluntary audits and the cost of debt capital for privately held firms: Korean evidence. Contemporary Accounting Research, 28(2), 585–615. CrossrefGoogle Scholar
    • Kim, J. B., Song, B. Y. & Zhang, L. (2011b). Internal control weakness and bank loan contracting: Evidence from SOX Section 404 disclosures. The Accounting Review, 86(4), 1157–1188. CrossrefGoogle Scholar
    • Kim, J. B., Tsui, J. S. & Yi, C. H. (2011c). The voluntary adoption of International Financial Reporting Standards and loan contracting around the world. Review of Accounting Studies, 16(4), 779–811. CrossrefGoogle Scholar
    • Kothari, S. P., Leone, A. J. & Wasley, C. E. (2005). Performance matched discretionary accrual measures. Journal of Accounting and Economics, 39(1), 163–197. CrossrefGoogle Scholar
    • Land, J. & Lang, M. H. (2002). Empirical evidence on the evolution of international earnings. The Accounting Review, 77(s-1), 115–133. CrossrefGoogle Scholar
    • Lawrence, A., Minutti-Meza, M. & Zhang, P. (2011). Can Big 4 versus non-Big 4 differences in audit-quality proxies be attributed to client characteristics? The Accounting Review, 86(1), 259–286. CrossrefGoogle Scholar
    • Lee, Y. H., Kang, S. A. & Cho, S. M. (2015). The effect of voluntary IFRS adoption by unlisted firms on earnings quality and the cost of debt: Empirical evidence from Korea. Journal of Business Economics and Management, 16(5), 931–948. CrossrefGoogle Scholar
    • Lennox, C. S., Francis, J. R. & Wang, Z. (2012). Selection models in accounting research. The Accounting Review, 87(2), 589–616. CrossrefGoogle Scholar
    • Leuz, C. & Verrecchia, R. E. (2000). The economic consequences of increased disclosure (digest summary). Journal of Accounting Research, 38(3), 91–124. CrossrefGoogle Scholar
    • Leuz, C., Nanda, D. & Wysocki, P. D. (2003). Earnings management and investor protection: An international comparison. Journal of Financial Economics, 69(3), 505–527. CrossrefGoogle Scholar
    • Lim, C. Y., Wang, J. & Zeng, C. C. (2018). China’s “mercantilist” government subsidies, the cost of debt and firm performance. Journal of Banking & Finance, 86, 37–52. CrossrefGoogle Scholar
    • Litjens, R., Bissessur, S., Langendijk, H. & Vergoossen, R. (2012). How do preparers perceive costs and benefits of IFRS for SMEs? Empirical evidence from the Netherlands. Accounting in Europe, 9(2), 227–250. CrossrefGoogle Scholar
    • McNichols, M. F. (2002). Discussion of the quality of accruals and earnings: Multiples. Journal of Accounting Research, 40(1), 135–172. Google Scholar
    • Minnis, M. (2011). The value of financial statement verification in debt financing: Evidence from private US firms. Journal of Accounting Research, 49(2), 457–506. CrossrefGoogle Scholar
    • Morris, R. D., Gray, S. J., Pickering, J. & Aisbitt, S. (2013). Preparers’ perceptions of the costs and benefits of IFRS: Evidence from Australia’s implementation experience. Accounting Horizons, 28(1), 143–173. CrossrefGoogle Scholar
    • Paananen, M. & Lin, H. (2009). The development of accounting quality of IAS and IFRS over time: The case of Germany. Journal of International Accounting Research, 8(1), 31–55. CrossrefGoogle Scholar
    • Peek, E., Cuijpers, R. & Buijink, W. (2010). Creditors’ and shareholders’ reporting demands in public versus private firms: Evidence from Europe. Contemporary Accounting Research, 27(1), 49–91. CrossrefGoogle Scholar
    • Pope, P. F. & McLeay, S. J. (2011). The European IFRS experiment: Objectives, research challenges and some early evidence. Accounting and Business Research, 41(3), 233–266. CrossrefGoogle Scholar
    • PricewaterhouseCoopers. (2006). IFRS: Tax implications for the EU financial industry – Are you ready? Available at: http://www.pwc.com. Google Scholar
    • PricewaterhouseCoopers. (2009). IFRS perspective: An executive survey. Available at: http://www.barometersurveys.com/store/docs/ifrs-perspective-executive-survey.pdf [Last accessed 3 May 2019]. Google Scholar
    • PricewaterhouseCoopers. (2014). IFRS adoption by country. Available at: https://www.pwc.com/us/en/issues/ifrs-reporting/publications/assets/pwc-ifrs-by-country-2014.pdf. Google Scholar
    • Richardson, S. & Tuna, I. (2012). Evaluating financial reporting quality. In T. R. RobinsonE. HenryW. L. PirieM. A. BroihahnA. T. Cope (Eds.). International Financial Statement Analysis, 2nd Edn., pp. 723–783. Wiley. Google Scholar
    • Saudagaran, S. M. & Meek, G. K. (1997). A review of research on the relationship between international capital markets and financial reporting by multinational firms. Journal of Accounting Literature, 16, 127. Google Scholar
    • Shan, Y., Taylor, S. L. & Walter, T. S. (2013). Earnings management or measurement error? The effect of external financing on unexpected accruals. In Asian Finance Association (AsianFA) 2015 Conference Paper. Available at: http://ssrn.com/abstract=1572164. Google Scholar
    • Took, L. (1997). Whatever happened to the Quadro Fedele? European Accounting Review, 6(3), 527–539. CrossrefGoogle Scholar
    • Tsalavoutas, I. & Evans, L. (2010). Transition to IFRS in Greece: Financial statement effects and auditor size. Managerial Auditing Journal, 25(8), 814–842. CrossrefGoogle Scholar
    • Van Hulle, K. (2004). From accounting directives to international accounting standards. In C. LeuzD. PfaffA. Hopwood (Eds.). The Economics and Politics of Accounting: International Perspectives on Trends, Policy, and Practice, pp. 349–375. Oxford Scholarship Online. CrossrefGoogle Scholar
    • Van Tendeloo, B. & Vanstraelen, A. (2005). Earnings management under German GAAP versus IFRS. European Accounting Review, 14(1), 155–180. CrossrefGoogle Scholar
    • Wu, M. W. & Shen, C. H. (2013). Corporate social responsibility in the banking industry: Motives and financial performance. Journal of Banking & Finance, 37(9), 3529–3547. CrossrefGoogle Scholar
    • Wysocki, P. D. (2004). Discussion of ultimate ownership, income management, and legal and extra-legal institutions. Journal of Accounting Research, 42(2), 463–474. CrossrefGoogle Scholar