Adopting a Label: Heterogeneity in the Economic Consequences Around IAS/IFRS Adoptions
University of Mannheim
University of Pennsylvania - The Wharton School
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Center for Financial Studies (CFS); University of Pennsylvania - Wharton Financial Institutions Center; CESifo Research Network
Rodrigo S. Verdi
Massachusetts Institute of Technology (MIT)
March 12, 2013
Journal of Accounting Research, Vol. 51, No. 3, pp. 495-547, 2013
This study examines liquidity and cost of capital effects around voluntary and mandatory IAS/IFRS adoptions. In contrast to prior work, we focus on the firm-level heterogeneity in the economic consequences, recognizing that firms have considerable discretion in how they implement the new standards. Some firms may make very few changes and adopt IAS/IFRS more in name, while for others the change in standards could be part of a strategy to increase their commitment to transparency. To test these predictions, we classify firms into ‘label’ and ‘serious’ adopters using firm-level changes in reporting incentives, actual reporting behavior, and the external reporting environment around the switch to IAS/IFRS. We analyze whether capital-market effects are different across ‘serious’ and ‘label’ firms. While on average liquidity and costs of capital often do not change around voluntary IAS/IFRS adoptions, we find considerable heterogeneity: ‘Serious’ adoptions are associated with an increase in liquidity and a decline in cost of capital, whereas ‘label’ adoptions are not. We obtain similar results when classifying firms around mandatory IFRS adoption. Our findings imply that we have to exercise caution when interpreting capital-market effects around IAS/IFRS adoption as they also reflect changes in reporting incentives or broader changes in firms’ reporting strategies, and not just the standards.
Keywords: International accounting, Reporting incentives, IAS, U.S. GAAP, Disclosure, Cost of equity, IFRS implementation
JEL Classification: G14, G15, G30, K22, M41, M42
Date posted: March 19, 2013 ; Last revised: April 21, 2013
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