Incentives or Standards: What Determines Accounting Quality Changes Around IFRS Adoption?

Abstract:     
We examine the impact of incentives on accounting quality changes around IFRS adoption. In particular, we examine earnings management and timely loss recognition, constructs often used to assess accounting standards quality. While existing literature documents accounting quality improvements following IFRS adoption, we find that improvements are confined to firms with incentives to adopt. Further, we find that firms that resist IFRS have closer connections with banks and inside shareholders, which could explain these firms' lack of incentives to adopt IFRS. The overall results indicate that incentives dominate accounting standards in determining accounting quality.

Keywords: IFRS, IAS, accounting quality, incentives, international accounting, regulation, standard setting

JEL Classifications: G15, G18, G29, M41, M43, M44, M47

Working Paper Series