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The Impact of Legal and Voluntary Investor Protection on the Early Adoption of IFRS


Annelies Renders


Maastricht University

Ann Gaeremynck


KU Leuven

June 16, 2005


Abstract:     
Previous studies (Dumontier and Raffournier, 1998, El-Gazzar et al, 1999; Cuijpers and Buijink, 2004) typically explain the early adoption of IFRS by firm-specific benefits. However, the adoption of IFRS also leads to costs for company insiders, namely less managerial discretion and as a consequence smaller private benefits due to increased disclosure requirements and less accounting method choices. This paper argues that the cost of adopting IFRS depends on characteristics of the institutional environment, more specifically the level of investor protection.

Using a sample of European companies, we find that IFRS is more likely adopted in countries with strong laws protecting investors and/or extensive corporate governance recommendations where the loss of private benefits following IFRS-adoption is lower. Furthermore, the results show that corporate governance recommendations are as effective as hard laws in stimulating IFRS-adoption and that their impact increases as laws become weaker. This suggests that by improving corporate governance codes, countries can easily reduce the extraction of private benefits by managers and enhance the quality of the financial information. However, when looking at specific recommendations and laws, we find that shareholder rights with regard to voting rights and the general meeting need to be regulated by law in order to effectively reduce the level of private benefits.

Number of Pages in PDF File: 37

Keywords: early adoption of IFRS; private benefits of control; corporate governance; legal investor protection.

JEL Classification: K22, M41, M43, M47, G34

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Date posted: June 17, 2005  

Suggested Citation

Renders, Annelies and Gaeremynck, Ann, The Impact of Legal and Voluntary Investor Protection on the Early Adoption of IFRS (June 16, 2005). Available at SSRN: http://ssrn.com/abstract=744531 or http://dx.doi.org/10.2139/ssrn.744531

Contact Information

Annelies Renders (Contact Author)
Maastricht University ( email )
P.O. Box 616
Maastricht, 6200MD
Netherlands
Ann Gaeremynck
KU Leuven ( email )
Naamse straat 69
Leuven, Vlaams-Brabant B-3000
Belgium
3216326921 (Phone)
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