Abstract

http://ssrn.com/abstract=1999898
 
 

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Mandatory IFRS Adoption and the Contractual Usefulness of Accounting Information in Executive Compensation


Neslihan Ozkan


University of Bristol - School of Economics, Finance and Management, UK

Zvi Singer


McGill University - Desautels Faculty of Management

Haifeng You


Hong Kong University of Science & Technology - Department of Accounting

February 5, 2012

Journal of Accounting Research, Forthcoming

Abstract:     
We examine how the mandatory adoption of IFRS in Continental Europe affects the contractual usefulness of accounting information in executive compensation, as reflected in pay-performance sensitivity (PPS) and relative performance evaluation (RPE). The empirical evidence indicates a weak increase in accounting-based PPS in the post-adoption period, primarily driven by countries with large differences between IFRS and their previously adopted local accounting standards. We also document a significant increase in accounting-based RPE using foreign peers after the adoption. Additional analysis shows that the increase in RPE is greater for firms with more foreign sales, and for those with lower availability of domestic peers of comparable size. The overall results are consistent with the compensation committees in those countries perceiving earnings after IFRS adoption to be of higher quality and comparability. Our paper highlights an important benefit of IFRS largely ignored by the literature, i.e., the higher earnings quality and comparability brought by the adoption of IFRS facilitate executive compensation contracting.

Number of Pages in PDF File: 49

Keywords: IFRS adoption, pay-performance sensitivity, relative performance evaluation, comparability of financial statements

JEL Classification: D8, J33, M41, M48

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Date posted: February 6, 2012  

Suggested Citation

Ozkan, Neslihan and Singer, Zvi and You, Haifeng, Mandatory IFRS Adoption and the Contractual Usefulness of Accounting Information in Executive Compensation (February 5, 2012). Journal of Accounting Research, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1999898

Contact Information

Neslihan Ozkan
University of Bristol - School of Economics, Finance and Management, UK ( email )
United States
HOME PAGE: http://www.bristol.ac.uk/accounting/staff/ozkan.html
Zvi Singer
McGill University - Desautels Faculty of Management ( email )
1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada
(514) 398-6240 (Phone)
Haifeng You (Contact Author)
Hong Kong University of Science & Technology - Department of Accounting ( email )
Clear Water Bay
Kowloon
Hong Kong
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