What Drives the Comparability Effect of Mandatory IFRS Adoption?

61 Pages Posted: 14 May 2009 Last revised: 21 Feb 2015

See all articles by Stefano Cascino

Stefano Cascino

London School of Economics

Joachim Gassen

Humboldt University of Berlin - School of Business and Economics; Humboldt University of Berlin - Center for Applied Statistics and Economics (CASE)

Date Written: March 24, 2014

Abstract

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. [2011] 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.

Keywords: international accounting, IFRS, comparability, compliance, reporting incentives

JEL Classification: M41, G14, F42

Suggested Citation

Cascino, Stefano and Gassen, Joachim, What Drives the Comparability Effect of Mandatory IFRS Adoption? (March 24, 2014). Review of Accounting Studies 20(1): 242-282, March 2015. Available at SSRN: https://ssrn.com/abstract=1402206 or http://dx.doi.org/10.2139/ssrn.1402206

Stefano Cascino

London School of Economics ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
+44 (0)20 7955 6457 (Phone)
+44 (0)20 7955 7420 (Fax)

HOME PAGE: http://www.lse.ac.uk/accounting/people/stefano-cascino

Joachim Gassen (Contact Author)

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany
+49 30 2093 5764 (Phone)
+49 30 2093 5670 (Fax)

Humboldt University of Berlin - Center for Applied Statistics and Economics (CASE) ( email )

Spandauer Strasse 1
Berlin, D-10178
Germany

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