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http://ssrn.com/abstract=1013054
 
 

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


Hans Bonde Christensen


University of Chicago - Booth School of Business

Edward Lee


University of Manchester - Manchester Business School

Martin Walker


University of Manchester - Manchester Business School

Cheng Zeng


Manchester Business School

January 30, 2015

European Accounting Review Forthcoming

Abstract:     
We examine the impact of managerial financial reporting incentives on accounting quality changes around International Financial Reporting Standards (IFRS) adoption. A novel feature of our single-country setting based on Germany is that voluntary IFRS adoption was allowed and common before IFRS became mandatory. We exploit the revealed preferences in the choice to (not) adopt IFRS voluntarily to determine whether the management of individual firms had incentives to adopt IFRS. For comparability with previous studies, we assess accounting quality through multiple constructs such as earnings management, timely loss recognition, and value relevance. While most existing literature documents accounting quality improvements following IFRS adoption, we find that improvements are confined to firms with incentives to adopt, that is, voluntary adopters. We also find that firms that resist IFRS adoption have closer connections with banks and inside shareholders, consistent with lower incentives for more comprehensive accounting standards. The overall results indicate that reporting incentives dominate accounting standards in determining accounting quality. We conclude that it is unwarranted to infer from evidence on accounting quality changes around voluntary adoption that IFRS per se improves accounting quality.

Number of Pages in PDF File: 50

Keywords: IFRS, IAS, accounting quality, international accounting

JEL Classification: K22, M41, M48


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Date posted: September 10, 2007 ; Last revised: February 23, 2015

Suggested Citation

Christensen, Hans Bonde and Lee, Edward and Walker, Martin and Zeng, Cheng, Incentives or Standards: What Determines Accounting Quality Changes Around IFRS Adoption? (January 30, 2015). European Accounting Review Forthcoming. Available at SSRN: http://ssrn.com/abstract=1013054 or http://dx.doi.org/10.2139/ssrn.1013054

Contact Information

Hans Bonde Christensen (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 South Woodlawn Avenue
Chicago, IL 60637
United States

Chicago Booth School of Business Logo

Edward Lee
University of Manchester - Manchester Business School ( email )
Oxford Road
Manchester, M13 9PL
United Kingdom
Martin Walker
University of Manchester - Manchester Business School ( email )
Booth Street West
Manchester, M15 6PB
United Kingdom
Cheng Zeng
Manchester Business School ( email )
Oxford Road
Manchester, M13 9PL
United Kingdom
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