Abstract

http://ssrn.com/abstract=1125716
 
 

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Earnings Management and Value Relevance During the Mandatory Transition from Local GAAPs to IFRS in Europe


Vedran Capkun


HEC Paris - Accounting and Management Control Department

Anne Cazavan Jeny


ESSEC Business School; ESSEC Business School - Accounting and Management Control Department

Thomas Jeanjean


ESSEC Business School

Lawrence A. Weiss


Tufts University - The Fletcher School

April 25, 2008


Abstract:     
This paper analyzes a sample of 1,722 European firms during their mandatory transition from local country accounting rules (Local GAAP) to International Financial Reporting Standards (IFRS) in 2004 and 2005 using the same set of firm-year observations. We use this unique transition period to examine the impact of a change in accounting standards on the quality of firms' financial statements. The transition to IFRS appears to have a small but significant impact on firms' reported total assets and book equity, as well as on their reported goodwill, intangible assets, property plant and equipment, long term debt and current assets and liabilities. For the same reporting period, Return on Assets (ROA) is significantly higher under IFRS than under Local GAAP with the greater increase occurring in those firms with lower levels of ROA under Local GAAP. This transition earnings management is present in all countries, but its level is highest in those countries with weaker legal institutions and higher levels of pre-transition earnings management. These results are consistent with managers using the transition to improve their reported earnings and ROA. IFRS earnings reconciliation disclosures are value relevant even with the noted transition earnings management. The value relevance of the book value of equity is limited to the Local GAAP reports. Both, partial and full IFRS earnings reconciliations are associated with market value and returns.

Number of Pages in PDF File: 63

Keywords: IFRS, Earnings Management, Value Relevance

JEL Classification: M41, G10

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Date posted: April 29, 2008 ; Last revised: March 12, 2013

Suggested Citation

Capkun , Vedran and Cazavan Jeny, Anne and Jeanjean, Thomas and Weiss, Lawrence A., Earnings Management and Value Relevance During the Mandatory Transition from Local GAAPs to IFRS in Europe (April 25, 2008). Available at SSRN: http://ssrn.com/abstract=1125716 or http://dx.doi.org/10.2139/ssrn.1125716

Contact Information

Vedran Capkun
HEC Paris (Groupe HEC) - Accounting and Management Control Department ( email )
Jouy-en-Josas Cedex
France

Anne Cazavan Jeny
ESSEC Business School ( email ) ( email )
Av Bernard Hirsch
BP 50105
Cergy-Pontoise, 95021
France
ESSEC Business School - Accounting and Management Control Department ( email ) ( email )
Av Bernard Hirsch
BP 50105
Cergy-Pontoise, 95021
France
Thomas Jeanjean (Contact Author)
ESSEC Business School ( email )
Avenue Bernard Hirsch
B.P 50105
BP 105 Cergy Cedex, 95021
France
Lawrence A. Weiss
Tufts University - The Fletcher School ( email )
Medford, MA 02155
United States
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References:  37
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