What Drives the Comparability Effect of Mandatory IFRS Adoption?
London School of Economics
Humboldt University of Berlin - School of Business and Economics; Humboldt University of Berlin - Center for Applied Statistics and Economics (CASE)
March 24, 2014
Review of Accounting Studies 20(1): 242-282, March 2015
We investigate the effects of mandatory IFRS adoption on the comparability of financial accounting information. Using two comparability proxies based on De Franco et al.  and a comparability proxy based on the degree of information transfer, our results suggest that the overall comparability effect of mandatory IFRS adoption is marginal. We hypothesize that firm-level heterogeneity in IFRS compliance explains the limited comparability effect. To test this conjecture, we first hand-collect data on IFRS compliance for a sample of German and Italian firms and find that firm-, region-, and country-level incentives systematically shape IFRS compliance. We then use the identified compliance determinants to explain the variance in the comparability effect of mandatory IFRS adoption and find it to vary systematically with firm-level compliance determinants, suggesting that only firms with high compliance incentives experience substantial increases in comparability. Moreover, we document that firms from countries with tighter reporting enforcement experience larger IFRS comparability effects, and that public firms adopting IFRS become less comparable to local GAAP private firms from the same country.
Number of Pages in PDF File: 61
Keywords: international accounting, IFRS, comparability, compliance, reporting incentives
JEL Classification: M41, G14, F42
Date posted: May 14, 2009 ; Last revised: February 21, 2015